Oil Prices Could Reach $200 a Barrel in 2022
Former Chase chief economist Anthony Chan believes that the odds of a recession are more than 40 percent.
It might seem unthinkable, but there is real concern that a worst-case scenario in the Russia-Ukraine War could trigger an oil price spike to $200 a barrel.
According to Yahoo Finance, Goldman Sachs believes this scenario would drive the U.S. economy into a recession. “We estimate that it would take a sustained oil price increase to $200 per barrel to produce an income shock similar in magnitude to those that precipitated the 1974 and 1979 recessions—and this would significantly increase the 2022 recession odds,” Goldman Sachs chief economist Jan Hatzius said in a note earlier this week.
Since backing away from the highs of roughly $140 a barrel during the early stages of the Russia-Ukraine war, oil is still in the elevated $115 to $125 range. Compared to last year, Brent crude prices have more than doubled.
In an interview on Yahoo Finance Live, RBC Capital Markets analyst Michael Tran said that “it is not unfathomable for prices to rocket to $200 a barrel by summer, spur a recession and end the year closer to $50 a barrel.” He added that “this is not our base case, but such a scenario does not sound implausible today.”
40 Percent Chance of Recession
According to Fox Business, former Chase chief economist Anthony Chan believes that the odds of a recession are more than 40 percent. “Given everything that we know today, the probability is over 40 percent,” he said in an interview on Varney and Co. on Wednesday. “But for me to give you the super clear-cut answer, I would love the probability of something to be 100 percent, and we're not there yet.” Chan also said there is “no question” that there is a much “higher likelihood of a recession today than there was a year ago.”
Hawkish Federal Reserve
Also driving much of this recession talk is an increasingly hawkish Federal Reserve, which recently raised interest rates for the first time since 2018 to kick off efforts to tackle inflation that has reached a four-decade high. With the federal funds rate now at 0.25 to 0.50 percent, the long-awaited move marks the end of the Fed’s easy-money policy amid the two-year-long pandemic. The Fed has also penciled in rate increases at each of the six remaining meetings this year—which would point to a consensus funds rate of 1.9 percent by year’s end.
According to Reuters, there is also talk that even more aggressive rate hikes could be in the cards. “A source close to JPMorgan Chase and Co. CEO Chief Executive Officer Jamie Dimon said he was now predicting 12 to 15 rate hikes—or a cumulative 300 to 375 basis points—in this hiking cycle,” the news agency wrote.
In a research note on Thursday, analysts at NatWest said that “the Fed has seen the light on inflation … and thus is essentially admitting to being behind the curve.” They concluded by saying that investors will become “increasingly concerned about the Fed inducing a recession, and soon.”
Ethen Kim Lieser is a Washington state-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.