The stock market is gearing up for a year-end rally, as oil prices ease and provide an unexpected windfall to investors who have come to accept sustained crude costs above $50 a barrel.
Analysts said investors have looked past the current high oil price and like what they see: attractive market fundamentals based on low valuations, high earnings returns and robust global economic growth.
"There's no question that if the oil prices come down, the stock market would go up," Ian Scott, European strategist at Lehman Brothers told Reuters.
Scott reckons that the $7 a barrel reduction in crude oil prices seen in the last two weeks is worth 5 percent to 6 percent on the value of the global stock market.
"Valuations are good and the market appears to have discounted the high crude prices. If oil prices stabilise at this level we expect the equity market to rise," he added.
The FTSEurofirst 300 index of pan-European blue chips hit a fresh six-month high at 1,022 points on Friday, a level last seen when oil was trading at around $37 a barrel, a massive $12 a barrel or 32 percent below current levels.
Should oil prices sink back to the levels seen in the summer, a big boost to share prices are in the offing, they said.
"Equity markets are pretty good at pricing in these factors and there has been some macro fatigue. We've had high oil prices for some time and people who were going to sell have sold. So there is scope for share prices to rise," said another analyst at a European bank, who did not want to be named.
US light crude oil fell below $49.00 a barrel on Tuesday, down from the all-time peak of $55.67 struck on October 25.
Most analysts agree that oil prices are unlikely to spike this winter due to rising crude supplies, although low heating oil inventories mean that the market will be vulnerable should the weather turn unseasonably cold.
Analysts say that many big energy-consuming companies are poised to rally as these stocks suffered badly when investors priced in worst-case scenarios for oil prices and profits that now seem unlikely.
Shares in leading domestic appliance makers Electrolux and Merloni were pummelled more than a month ago, when they issued such warnings, have since somewhat regained their poise.
Big energy users like airlines are among those set to benefit if oil eases and fuel prices come down.
"Any reduction from here (of jet fuel prices) would, we believe, give a sufficient space for sentiment towards these airlines that a 'relief rally' might finally commence," JP Morgan airlines analyst Chris Avery, wrote in a recent research report.
In the two weeks since oil came off record levels, airlines like British Airways, Lufthansa and Ryanair have gained between 9 and 38 percent - the benefit skewed towards low-fares airlines as fuel is their second biggest expense after labour.
On the flip side, investors have factored bumper earnings into the current share prices of oil companies, leaving them vulnerable to falling crude prices.
Analysts have systematically raised their oil price forecast for the coming quarter and next year.
Deutsche Bank expects earnings at the world's biggest oil companies to rise 14 percent next year and it recently raised its forecast for Brent crude oil prices to $46 from $35 a barrel in the fourth quarter and to $34.50 from $30 for 2005's average price.
Brent fell to a six-week low on Tuesday, below $45.00 and down from its record of $51.94 hit two weeks ago.