Higher Oil Price Good for equities?

Oil prices have been quite well correlated with equity prices in recent times.  Not entirely sure why weaker oil prices led to weaker equities.  The oil sector though highly leveraged is only a very small part of the equity markets, and in our opinion the wider impact of lower oil prices should outweigh the pressure on the oil sector.  This chart, from Capital Economics shows the strong correlation between oil and equities:

Lower prices have led to a noticeable reduction in US supply as capital investment hit a brick wall over the last 18 months:

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