In a new note on Thursday, Goldman Sachs chief economist Jan Hatzius said:
"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 โ and this would significantly increase the 2022 recession odds."Oil prices have come off their highs of around $140 a barrel seen at the start of the Russia-Ukraine war, but remain uncomfortably high. Brent crude oil hovered at $122 a barrel Thursday amid concerns on a new spate of sanctions on Russia by the West.
Prices for Brent crude oil have more than doubled compared to this time last year.
RBC Capital Markets analyst Michael Tran on Yahoo Finance Live said:
"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 ($200 call options have been bid). To be clear, this is not our base case, but such a scenario does not sound implausible today."Meanwhile, the national average price for gasoline is up 71.5 cents from a month ago and $1.37 per gallon higher than a year ago, according to GasBuddy. In turn, that has sent consumer confidence plunging and concerns sweeping Wall Street of a consumer spending pullback (which could lead the economy into a recession).
Comment: Many parts of the country, such as California, the price increase is much higher than this estimate.
While Hatzius is worried about a recession, he isn't yet ready to predict one for this year despite elevated energy and food costs. Hatzius is modeling for 1.9% GDP growth in 2022.
"The commodity shocks in the early stages of the 1974, 1980, 1990, and 2008 recessions fully offset the year-on-year trend in real incomes โ implying no scope to increase real consumption without drawing down savings.
"This is not the case in 2022 thanks to strong payroll and wage growth, nor was it the case during the commodity upswings and continued expansions of 1999, 2005, and 2010. Additionally, the $2 trillion-plus of excess savings accumulated during the pandemic and the record-high household wealth-to-income ratio represent additional buffers for consumer spending growth this year."
Reader Comments
Problem is, it is not being used to its capacity.
By 2017 most of the large, foreign owner/operators of our resource industry had closed up shop. Multi-billion dollar operations mothballed after only a few years operation. They did this ostensibly because we have limited pipeline capacity and cannot get approval from the Great, Green Demon for more.
It is the GGD that has gained control of Carbon on this planet and will control our every move with it. As we are all 'carbon-based' life forms, I cannot think of a better element to use as a control mechanism.
Look at the havoc being wrought in the energy markets today by the GGD's attempt to remove fossil fuel cars from the road and ships from the sea.
Beware the Great Green Demon as it spouts is corrosive attacks on Carbon, and its minions collecting the taxes.
They don't get it. I read about a farmer in Iowa, his $50,000 tractor is sitting idle in the middle of one of his fields, because it needs a $40 part that he cannot get anywhere. The governments of the world have broken the supply chain with their COVID lockdowns the last 2 years, and now their sanctions on Russia, which produces 62% of the world's fertilizer, and has banned all exports of it, and now the broken supply chain has brought EVRYTHING to a standstill, or soon will.
The only people who are going to weather the coming economic and agricultural collapse relatively well are the Amish, for two reasons. First, they hardly rely at all on the modern technological world, and second, they help each other out. If that farmer needing the $40 part was Amish, all his neighbors would get together to bring in his crops by hand, the same way they always have.
Most of the people in our societies won't make it out.
Our societies have fallen a very long way from the values represented by the Amish, which means the learning curve of the 'English' who want to survive is very steep.
Yes, Beware for sure. Beware of any Ass Hole who tries to tax the air you breathe. ("period" added emphasis) If you believe that, I can't help you type of thing.