If we divide the price of the S&P 500 Oil & Gas group by the price of oil ($/barrel), the ratio (as of 5/18) comes to 7.83. This ratio has been increasing for the past year and has held steadily above seven for the past six months. This differs from the vacillation between five and seven that the ratio incurred over the prior four years. When the ratio is rising, oil stocks are outperforming the commodity, and vice versa for a declining ratio.
Have investors put in place a higher premium for oil stocks compared to oil prices, or will the ratio revert back to its typical range between five and seven? If you are of the belief that the ratio will revert, oil the commodity has to start outperforming oil-related stocks.