Kate Mackenzie Volatility: stock markets vs oil and other commodities

As many commentators have noted, oil has been staying close to the $50 mark for several weeks now. Inventory concerns, the US dollar and of course the big question of demand are all moving the price, but even swine flu fears haven’t caused it to deviate for long.

These charts from Capital Economics show how much oil price volatility has come down, after spending much of the past seven months at very high levels.

Note how oil prices were much more volatile than other commodities. As the next chart shows, oil’s volatility levels has quite a resemblance to that of equity markets.

As Schork Report wrote this morning: “oil markets moved higher because – you know why – because equities moved higher. Meantime, natty moved
lower because – you know why – because unlike oil, the price path in natural gas correlates to its fundamentals…
and not the stock market.”

Government bonds by comparison have moved in a somewhat more episodic way.

On the plus side, price stability is generally considered a Good Thing from most perspectives: investment in future production of both fossil fuels and its alternatives requires some stability.

The downside however is that at the $50 level, there is little natural economic incentive to either invest in unconventional oil or in renewables.

Related links:

What does $50 oil mean for unconventional oil and renewables? (20/03/09)