High energy prices during a recession?
After a double peak in crude oil in August and since October 2022, the price has fallen back from over $120 per barrel to bottom out in June this year at just under $70. Since then, the price has risen in a strong trend, first to above $90 before falling back to levels just above $80 but now looks to break out to the upside again.
Opinions are divided whether we are facing a recession or not. Inflation has fallen back and real interest rates in the US are positive, GDP came in stronger than expected and so far the catastrophic consequences predicted in connection with the sharply rising interest rates have not been seen. Now, however, the Federal Reserve appears to be facing a crossroads. Much suggests that Powell will announce a continued pause during the interest rate announcement in early November, but it is what Powell will say after the announcement that is interesting; will he signal continued pause or further hikes in December?
A continued pause could be a sign that the economy, which currently looks strong, is failing. Sharply rising interest rates have never, historically, led to a recession, so why should it be any different in a situation where we are in record debt? In the US, new mortgage applications have already seen their lowest levels since the 1990s and the days when money was free are far behind us.
At the same time, the S&P 500, despite a recent decline, has remained at relatively high levels while other assets have fallen back. Now the question is, IF we are facing a recession, where can one place one's capital if one is looking for diversification that has historically performed relatively well against stocks during recessions?
Energy
1973-1975
During the 1970s, oil prices were affected by the 1973 oil crisis, which was triggered by the Yom Kippur War and the subsequent OPEC embargo against the United States and other countries. The price of WTI crude rose from about $3.56 a barrel in January 1973 to over $12 in January 1975, representing a more than threefold increase.
1980, 1981-1982
In the 1980s, the United States experienced two recessions. The first, in 1980, was short but sharp, and it was quickly followed by another in 1981-82. These recessions were linked in part to the Iranian Revolution and the Iran-Iraq War, both of which disrupted oil supplies. WTI crude oil prices peaked at around $39 in 1980 before retreating and peaking again in 1981. But by 1986, oil prices had collapsed to below $10 a barrel due to a combination of slowing demand and increased production.
1990-1991
The recession of the early 1990s was influenced by the Gulf War in which Iraq invaded Kuwait, causing a temporary spike in oil prices. The price of WTI crude oil spiked to around $40 a barrel in October 1990 before falling back to the mid-20s in late 1991.
The 2001 recession was partly triggered by the bursting of the dot-com bubble and exacerbated by the 9/11 attacks. During this period, oil prices were relatively stable and fluctuated in the range of 20-30 dollars.
2007-2009
The 2007-2009 recession, known as the Great Recession, was the most severe downturn since the Great Depression and was caused by the subprime mortgage crisis. The price of WTI crude reached an all-time high of $147.27 in July 2008 before plunging below $40 a barrel in December 2008 due to a combination of the global economic downturn and the US shale oil boom.
Risks
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Disclaimer:
This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms relating to the securities. The base prospectus and final terms constitute the solely binding sales documents for the products mentioned herein. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on https://prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future performance. This information may only be distributed or published in countries where such distribution or publication is permitted by applicable law. As stated in the relevant base prospectus, the distribution of the securities mentioned in this information is subject to restrictions in certain jurisdictions. This advertisement may not be reproduced or redistributed without prior permission by Vontobel.
© Bank Vontobel Europe AG and / or affiliated companies. All rights reserved.