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Oil prices: What $100 per barrel oil means for risk of recession

·Markets Reporter
·3-min read
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Oil prices have come down below $100/barrel after staying above that level for much of last month. The Ukraine-Russia war worsened the upward trend costs for energy across the globe.

Yahoo Finance asked several experts what sustained prices above $100/barrel means for a risk of a recession in the U.S. and in other parts of the world. Most agree oil would have to stay closer to $130 in order to create enough demand destruction to spur a recession in this country. But some parts of the world are feeling the pain of high energy prices even more than in the U.S.

Here's what experts had to say:

"The higher oil prices, specifically diesel is affecting many countries outside of the U.S. in Latin America, Africa and Southeast Asia. Coupled with rising food and natural gas prices, we could see those parts of the world slide into a recession first, dragging China, Europe and finally the U.S. into recessions of their own.

Demand destruction is already occurring in Latin America. In the United States, I think we need to see gasoline prices in excess of $5 per gallon before the consumer is willing to significantly cut back on driving.

The longer prices stay above $100 per barrel, but closer to $120, the more likely it will be that we slip into a recession."

Andy Lipow, Lipow Oil Associates

"My view is that oil prices that stay above $125/b for too long is likely to spur another recession. This economy flirted with $100 oil for much of the period 2011-2014 (we averaged in the mid-to-high $90/b range in those years), and that did not induce a recession in the post-credit-crisis recovery.

It also runs the risk for sure of generating some demand destruction if prices remain high. Inventories of crude oil (commercial, not including the SPR) are down 25% from June 2020 peaks, which suggests that the economy is still in recovery mode.”

Stewart Glickman, energy equity analyst at CFRA Research in New York

"We think that there is likely to be a recession in Europe where natural gas prices have reached the energy equivalent of $240/bbl, which makes European manufacturing uncompetitive and hits consumers with very high heating and electricity costs.

The U.S. has relatively stable heating and electricity costs resulting in limited impact on consumer spending. In addition, the U.S. energy, materials and manufacturing sectors now have a tremendous advantage over the rest of the world since our cost of natural gas is only 15% the cost faced by the rest of the world.

Also, the U.S. housing sector continues to be resilient as there is a shortage of new homes. Eleven out of eleven post WWII recessions have been characterized by a major downturn in the housing sector."

Jay Hatfield, senior portfolio manager at ICAP ETF in New York

"For now recession risks appear modest and deferred into next year. The labor market growth and the return to office as we recover from the coronavirus pandemic should support economic activity into next year, deferring recession risks into 2023. For odds of recession to pull forward into 2022 would take significantly higher oil prices or an impingement on global energy supplies as the economy reopens.

Indications to us are that demand destruction really begins closer to $120-$130 a barrel. Consumer sentiment is the primary pressure point for high current prices. Recession risks are linked more closely to the Federal Reserve’s changes in interest rates."

— Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle

On Monday, West Texas Intermediate (BZ=F) and Brent International (CL=F) crude futures pulled back more than 4% amid continued lockdowns in China. The U.S. and International Energy Agency recently announced the release of petroleum reserves to ease rising oil costs.

Ines is a markets reporter covering stocks for Yahoo Finance. Follow her on Twitter at @ines_ferre

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