DataTrek is warning that the trigger for a recession could be a sustained high price for crude.
DataTrek researchers stated in a new note, “We still believe $140/barrel is the level to watch as a recession indicator. That would be a double from last summer’s $70/barrel level, and any time since 1970 when oil prices have gone up 2x in a year a recession has followed in the next 12-18 months.”
As inflation hammers retailers, and consumers have less money to spend due to rising gas prices, oil prices have assumed increased importance in the minds of investors
WTI crude has surged nearly 62% year to date fueled by the Russian military action in Ukraine and lingering aspects of the Covid pandemic.
For the seventh week in a row, average gas prices rose according to GasBuddy, averaging 26 cents week over week. The national average rose 56 cents in just the last month, and it is up $1.81 from this time last year. Gasoline costs over $5 per gallon in ten states at present.
As storm activity is forecasted to pick up in key drilling regions soon, and people begin the summer driving season, oil prices are forecast to go even higher. Goldman Sachs released an update to the 12-18 month forecast predicting prices would rise to $140 per barrel, possibly as soon as this summer. However they noted it would feel like $160 per barrel because limits on refining capacity would mean the refined products like gasoline would have a supply bottleneck driving their prices even higher than the oil price would indicate.
Goldman Sachs noted, “Fundamentals weakened in April-May, with modest declines in Russian exports, record large [U.S. Strategic Petroleum Reserve] sales and severe Chinese lockdowns bringing the oil market to its first surplus since June 2020. This politically created surplus is already ending, however, driven by the ongoing recovery in Chinese demand, with an 0.5 mb/d expected further decline in Russian production following the European ban. Oil’s structural deficit therefore remains unresolved, with in fact an even tighter oil market through April than we had expected.”
