Posted in: Commentary,
by Patrick DeHaan on Apr 29, 2010 12:57 PM
Today I'll take a closer look on how crude oil prices and the Dow Jones Industrial Average have followed each other during the past few months. During these times of an improving economy, a rising Dow Average also seems to signal increased demand to investors.
The time period I'm using for this analysis is October 1, 2009 to April 27, 2010. I'm using contract #2 of Cushing, Oklahoma for crude prices and comparing it to the published Dow Jones Average.
During the 143 trading days between October 1 and April 27, 2010, crude oil prices followed the Dow Jones Average higher or lower 67.6% of the time, meaning if the Dow Jones closed higher, oil did as well, etc. This represents oil prices and the Dow average following each other more than two-thirds of the time during this period.
There seems to be one almost fail safe bet as of late- if the Dow moves more than 100 points higher or lower, the rate of oil following the same direction jumps to nearly 95%. Only two days over the period did oil prices not follow the Dow over 100 points in any given direction: October 22, 2009 and November 5, 2009. These were both Thursdays two weeks after each other.
On October 22, the Dow gained 135 points while oil prices dropped just 12-cents ($0.12). On November 5, the Dow gained nearly 200 points while oil prices dropped $0.79. Since October 1, 2009, oil prices have never increased when the Dow dropped more than 100 points.
During this time frame, oil's biggest weekly gain came October 12-16, 2009, when it gained $6.77 in one week. The biggest loss for oil in one week was December 7-11, 2009, when oil lost $5.30.
For March and April 2010, here's how oil has fared:
Mar 1-5: +$1.91
Mar 8-12: -$0.38
Mar 15-19: -$0.57
Mar 22-26: -$0.50
Mar 29-Apr 1: +$4.87
Apr 5-9: +$0.29
Apr 12-16: -$0.96
Apr 19-23: +$2.37
Having said all this, there is a growing chance that after Memorial Day weekend we may see a downward correction in oil prices as inventories continue to stack up.