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A pumpjack operates at the Inglewood Oil field in Los Angeles, California, U.S., on Thursday, Oct. 19, 2012. On Monday, oil fell 3.3 per cent to a fresh five-year low of $55.91 (U.S.) a barrel in New York, down from a high of $107 this summer.Patrick Fallon/Bloomberg

The most popular explanation for declining oil prices rests on too much supply, but what if a slowing global economy is also to blame?

This is an uncomfortable question for investors. While a supply glut is bad news for energy stocks, a demand-driven story could affect a far wider group of investments.

As major stock market indexes continue to wobble, the question is gaining new urgency.

The S&P 500 has fallen 4.1 per cent over the past six trading days. Although energy stocks led the retreat, consumer discretionary stocks – which are supposed to benefit as consumers spend less on filling up their cars with gas – were also walloped, falling 2.9 per cent.

U.S. consumer stocks fell 0.6 per cent on Monday, in a decline that hit all 10 subindexes in the S&P 500.

A similar trend is unfolding in Canada, where the S&P/TSX composite index has fallen 5.3 per cent over the past six trading days. Consumer discretionary stocks are down 1.4 per cent over this period.

"The market is becoming worried that the oil price plunge to sub-$60 per barrel is becoming as much a demand story as supply story," said David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, in a note.

On Monday, oil fell 3.3 per cent to a fresh five-year low of $55.91 (U.S.) a barrel in New York, down from a high of $107 this summer.

The volatile stock market isn't the only manifestation of these worries over demand, either. Bond prices are rising as yields fall. The yield on the 10-year U.S. Treasury bond dipped below 2.1 per cent on Friday, for its lowest level in about 18 months.

"The risk-off move shows that investors are worried [about] weakness in the economies of Europe and Japan, leading to concerns of a drag effect on the U.S. economy as well," said Kevin Horan, a director at S&P Dow Jones Indices, in a note.

China, the world's second-largest oil consumer behind the United States, is also weighing on sentiment as its economy cools considerably. Gross domestic product in the third quarter slipped to 7.3 per cent, down from 7.5 per cent in the second quarter, for its slowest pace in five years.

China's purchasing managers' indexes, a measure of manufacturing activity, "are flashing stagnation in industrial activity and both electricity output and steel production are basically flat from year-ago levels," Mr. Rosenberg said.

At the same time, the country's property market is troubled, marked by tumbling residential sales and a surging inventory backlog.

James Hamilton, an economics professor at the University of California, San Diego, has tried to determine how much of the decline in oil prices is due to supply and how much to demand.

He looked at the price of copper, which is particularly sensitive to global economic activity, along with falling U.S. government bond yields and a surging U.S. dollar to get a sense of where the price of crude oil would normally go, based on historical data going back to 2007.

This approach points to crude oil priced at $85 a barrel.

"In other words, of the observed 45 per cent decline in the price of oil, 19 percentage points – more than two-fifths – might be reflecting new indications of weakness in the global economy," Mr. Hamilton said on his blog.

This is not just an academic exercise. If he's right, it suggests that crude oil isn't merely reacting to rising energy output from the United States and Canada, as well as OPEC's refusal to cut its production target at a meeting in Vienna last month.

It also suggests that oil is tumbling on a darkening outlook for the global economy.

"The economist and the strategist in the room carries the burden of calling the markets, but sometimes you have to step back, take a holistic approach, and assess what the message the markets are actually conveying," Mr. Rosenberg said.

Major indexes could be declining because of commodities-driven margin calls, year-end tax-loss selling or profit-taking, he believes.

"Or it could be something a little more nefarious – the markets are sniffing something out."

David Berman writes for Inside the Market (tgam.ca/inside-the-market), which offers up-to-the-minute analysis of stock trends and market-moving news throughout the trading day.