Fears are brewing over an oil-price shock that could rattle markets and the economy
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Analysts point out that there is a risk of shock in oil prices as geopolitical tensions increase.
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Oil prices rose 10 percent last week due to tensions between the United States and Venezuela and unrest in Iran.
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Higher oil prices could increase inflation and lead to a sell-off in stocks and bonds, an economist said.
Rising oil prices. Hot inflation. Turmoil in the markets.
This was a terrible combination the U.S. economy saw in the 1970s, but analysts say there are risks of another Shock in oil prices – such a situation oil prices These crises, which suddenly rise and create a domino effect that leads to negative consequences in the markets and the economy, are increasing with the increase in geopolitical conflicts.
Oil prices have risen in recent weeks due to US intervention Raid on Venezuela and threatened military intervention Iranian – two of the world’s largest crude oil producers.
March contracts Brent crude oilOil, the international benchmark, rose 10 percent last week and jumped as much as 3 percent on Tuesday, above $65 a barrel. This is the highest price for Brent since November.
Brent oil likely to reach $80 per barrel Shock in oil pricesAccording to José Torres, senior economist at Interactive Brokers.
In this scenario, Torres said he believes bonds and stocks will sell together because higher energy prices could drive sales. inflationThis may negatively affect economic growth. Higher inflation could also mean the Fed has less room to cut interest rates; This was an important catalyst that pushed risk assets higher last year.
“There’s definitely a risk of a shock to oil prices, especially with stocks having had three really strong years of gains,” Torres told Business Insider, referring to back-to-back years of double-digit gains. S&P 500.
Matt Gertken, chief geopolitical strategist at BCA Research, said recent tensions in Iran have increased the odds of a “major global oil supply shock” to around 40%. If the Iranian regime falls and conflicts in the region escalate, it could lead to a “significant loss” of oil production in the region, he wrote in a note to clients this week.
“Global and US equities are overvalued and will be subject to a near-term correction given overbought conditions and increasing bullishness.” geopolitical risk right now,” Gertken added.
Analysts at Deutsche Bank also flagged the risk that the market could experience an oil shock this year.
In its latest client note, the bank said, “The positive supply shock in oil prices will significantly affect inflation expectations and inflation risks,” describing the scenario as a significant risk for their economic outlook.
