DataTrek researchers warned Tuesday that a sustained high crude oil price could lead to a recession.
DataTrek researchers wrote in a note that $140/barrel was still the level to be watching as a recession indicator. This would be double the $70/barrel level last summer, and any time oil prices have risen 2x per year since 1970, a recession has occurred within the next 12-18 month.
In June, oil prices were back in the forefront of investors’ minds. This is especially after Target warned about the need to be cautious with consumer spending in light of rising inflation.
The WTI crude oil price, which is about 60% of regular gasoline retail price, has risen nearly 62% over the past year. This was driven by geopolitical tensions between Russia and the West after the invasion Ukraine and ongoing issues related to COVID-19.
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According to GasBuddy’s new data, the average national gas price rose last week for the seventh consecutive week. The national average for gas prices increased by a shocking 26 cents each week. GasBuddy’s data shows that the national average price of gas has increased by 56 cents compared to a month ago, and $1.81 compared to last year.
AAA reports that gas prices in ten states are now higher than $5 per gallon.
Wall Street strategists predict even higher oil prices as hurricane activity increases in key U.S. drill regions and people travel to the summer holidays.
In a new note, Goldman Sachs strategists said that “Fundamentals were weakening in April-May with modest declines Russian exports, large [U.S. Strategic Petroleum Reserve] sale records and severe Chinese lockdowns bringing oil market to its first surplus seit June 2020.” This politically-created surplus is now ending, however, due to the continuing recovery in Chinese demand and a 0.5 mb/d anticipated further decline in Russian production after the European ban. The structural oil deficit remains unresolved. In fact, the market for oil was actually tighter than we expected through April.”
