That may sound like the counterintuitive advice of the decade. After all, traditional economic theory holds that costlier petroleum usually spells bad news for stocks. Companies' production costs rise, reducing pro"t margins.

And as more spending is diverted to "lling up the family car or heating homes, consumers' disposable income shrinks.

That translates into lower sales and earnings for many companies unlucky enough to be outside the oil or gas business.

True enough.

Yet the massive amounts of liquidity that have propelled the prices of global stocks, real estate and contemporary art to stratospheric heights in the past four years may be altering the assumption that expensive oil is always bad for "nancial assets.

From a low of $25.24 on 29 April 2003, the price of a barrel of West Texas Intermediate crude traded on the New York Mercantile Exchange has more than doubled to about $60 as of 22 February. During the same period, the Standard & Poor's 500 Index rose 59%, the Dow Jones Stoxx 600 Index in Europe rallied 94%, the MSCI Emerging Markets Index more than tripled in value, and the Tokyo Stock Price Index has gained 131%.

As the price of oil skyrockets, petroleumexporting nations become wealthier. In economist-speak, their current-account surpluses expand.

Those petrodollar surpluses are then recycled to other markets, particularly the US, where the "ows help "nance the currentaccount de"cit, which was $656bn through the "rst three quarters of 2006.

Figuring out just where oil exporters stash their cash is one of the riddles of global "nance.

That's because many allocate funds to institutions such as the Kuwait Investment Authority and external money managers, unlike Asian central banks, which tend to manage their reserves in-house.

Still, the Federal Reserve Bank of New York in December estimated that $314bn, or about a quarter of fuel-exporters' combined $1.3 trillion in current-account surpluses from 2003 through 2006, was recycled back to the US directly. An additional chunk was probably recycled indirectly into dollars via third parties.

"Purchases of US securities may be booked largely through intermediaries based in London or offshore "nancial centers, " the International Monetary Fund said in a report last April. The IMF estimates that about 60% of fuel exporters' of"cial reserves are held in dollar assets.

What's more, fuel exporters are becoming more important in the recycling business. At $528bn, their current-account surpluses in 2006 surpassed Asia's $437bn for the "rst time since the 1970s.

The "ip side of higher oil prices leading to rising stock markets is that declining oil prices may lead to falling equities. That's because cheaper oil translates into smaller currentaccount surpluses in places such as Saudi Arabia, Russia and Kuwait. That means less money to invest in the US and other "nancial markets. (Bloomberg)