Abstract: We build an equilibrium model to disentangle industry-speciﬁc from business cycle effects of oil on stock returns. In our model oil is considered as an input factor for production and also as a macro variable. We estimate the model for 13 industries, including the oil industry. Our results suggest that the value of all non-oil industries decreases with an oil price shock. This result is explained by the effect of oil on the price-dividend ratios of the industries, in particular, by the signiﬁcant negative effect of oil on their growth opportunities. The high persistence of the real oil price shocks makes these effects to be long-lived. The effect of oil on the current cash-ﬂows is negative but small. This explains why the oil price shocks can produce such a signiﬁcant effects on the US ﬁnancial market despite the low US economy’s oil intensity. The conditional expected portfolio returns decrease with the oil price because of the negative effect of oil on the market price of risk and interest rates. Moreover, industries with higher systematic risk have expected returns that are more affected by the oil price. We ﬁnd that most of the systematic risk of the ﬁrms is explained by their output rather than by effect of oil on the cash-ﬂows.