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Oil and stocks: An unhealthy relationship?

Crude prices should not be so heavily influenced by oil stocks, one analyst told CNBC, saying that their recent correlation is fundamentally flawed.

Speaking after BP reported its worst annual loss in 20 years on Tuesday, Amrita Sen, the chief oil analyst at Energy Aspects, explained that while oil stocks have understandably dropped on the back of bad earnings, there is little reason for crude prices to follow suit.

"Oil company stocks are falling because the results are clearly very poor. But then that drags oil down despite the fact that all these companies…are deferring and cancelling more projects (and) they're laying off more people."

In most cases, efforts to scale back operations should be taken as a signal that the groundwork is being laid for another oil market upswing, Sen explained. But instead, oil traders seem to be interpreting this is as more bad news.

"Equities and oil have become very correlated at the moment but the fundamental logic for it? I'm not quite sure of that," Sen said.

Brent crude prices are down over 12 percent this year, after bouncing from their mid-January lows, to trade near $33 per barrel by mid-day London trade.

The pan-European Stoxx 600's oil and gas index has managed to avoid as heavy a blow – down only 7.54 percent since January 1 – but market fluctuations since the start of the year have closely mirrored Brent's volatile swings.

And at the end of the day, stock and oil traders have been reciprocating the blame.

"You spoke to the equity traders they would blame oil and when you spoke to the oil traders they were like "oh my god, equities are down" and the reason equities were down was because oil companies' shares were falling," Sen explained.

"It's not a very healthy situation for the market at the moment because they're feeding off each other," she said.

Throughout February, equity markets will have to carefully consider their next move, Bruno Verstraete, a partner at Lakefield Partners said.

"It's very much driven by anything that happens in the oil market which is a bit illogical. The big question the market is asking itself is whether oil is predicting the worst to come on the global economy or whether it is stimulating for the better to come," he told CNBC on Tuesday.


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