Welcome to Thoughts on the Market, I'm Martin Rantz, global oil strategist and head of

the European Energy Team for more instantly research.

Along with my colleagues bringing you a global perspective, I'll be talking about the

connection between oil prices and stock performance in the oil and gas sector.

It's Thursday, August 5th at 5pm in London.

Although oil prices have rallied sharply over the last year, the performance of oil

equities has been rather modest by comparison.

This begs the question, does the equity market actually believe the current price of oil?

If we take a look at the oil and gas sector's performance in Europe relative to the wider

European equity market and overlay that with the two year forward price of brand crude oil,

we see that oil equities have lagged the oil price rally significantly.

If we take a step back and look at the historic correlation between oil prices and oil equities,

these companies would currently be trading 50% higher or more if that correlation had been

maintained.

We're using specifically European data here, but the global data would paint a broadly

similar picture.

So we're asking the question, what's really going on here?

There are different ways to interpret this result, but an obvious one would be to argue

that this reflects a bit of skepticism on the part of equity investors that current

oil prices are sustainable.

And indeed, this would match some of the anecdotal feedback from investors.

But this thinking stands in sharp contrast with the result of another piece of analysis.

...