Oil prices have a way of capturing attention particularly when they move sharply or are tied to geopolitical events. When that happens, it is natural to ask whether something more significant is unfolding beneath the surface. The more important question, however, is not what oil is doing today but whether it meaningfully changes the long-term trajectory of markets. History suggests that, in most cases, it does not.
Not All Market Shocks Are Created Equal
Oil shocks often feel consequential because they are visible, immediate, and tied to real-world events. They can influence inflation expectations, corporate costs, and short-term market sentiment. But from an investment standpoint, most oil-driven disruptions share an important characteristic:
They are absorbed over time rather than compounded.
Markets are highly adaptive systems. Higher energy prices may pressure some businesses, but they also benefit others. Supply adjusts. Demand responds. Capital reallocates. Over time, the system rebalances. This is very different from structural forces like productivity growth, technological innovation, and corporate earnings expansion which tend to compound and drive long-term returns.
What History Tells Us
Looking back, there have been several periods where oil shocks dominated headlines and raised concerns about broader market implications:
- 1973–1974 Oil Embargo: Oil prices nearly quadrupled, contributing to a sharp economic slowdown and equity market drawdown. However, over the following decade, markets recovered and moved higher as economic growth resumed.
- 2008 Oil Spike: Oil surged to over $140 per barrel in mid-2008. While this coincided with the Global Financial Crisis, the primary driver of market declines was the collapse of the financial system, not energy prices themselves. Oil fell sharply soon after as demand contracted.
- 2022 Energy Shock: Following Russia’s invasion of Ukraine, oil prices spiked above $120 per barrel. Inflation rose and markets experienced volatility, yet global equities ultimately adjusted as supply chains adapted and inflation began to moderate.
Across each of these periods, oil was an important input but not the enduring driver of long-term market returns.
Where Investors Can Get Tripped Up
The challenge is not that oil doesn’t matter, it’s that it can feel like it matters more than it ultimately does. When headlines are dominated by energy prices or geopolitical tension, there is a natural tendency to:
- Overweight recent information
- Assume current conditions will persist
- Consider making portfolio adjustments in response
This is a form of recency bias and historically, it has led investors to make changes that feel prudent in the moment but prove unnecessary over time.
Rather than asking, “What will oil do next?” a more productive question is: “Does this change the long-term earnings power of the businesses we own?” In most cases, the answer is no. Oil may influence margins in the short term or create temporary dispersion across sectors, but it rarely alters the fundamental ability of strong businesses to grow and compound value over time. Stated differently: Oil can affect the path of markets, but it rarely changes the destination. For long-term investors, this reinforces a familiar but important principle: A well-constructed portfolio should be built to withstand a wide range of outcomes including fluctuations in energy prices.
At Gryphon, our approach reflects that philosophy. We focus on:
- Broad diversification across sectors, asset classes, and geographies
- Avoiding concentrated bets tied to any single commodity or macro outcome
- Maintaining discipline rather than reacting to short-term narratives
- Anchoring decisions in long-term drivers like earnings, cash flow, and capital allocation
This framework is designed not to predict short-term shocks, but to remain resilient through them.
The Bottom Line
Oil prices will continue to move, often unpredictably and sometimes sharply. Headlines will follow. But successful investing has never depended on forecasting commodity prices or reacting to near-term events. It has depended on understanding which forces are temporary and which ones truly shape long-term outcomes. For disciplined investors, that distinction remains as important today as ever.
Disclosure:
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.