Oil prices surging to $200 is possible and would spell doom for stocks: JPMorgan
WTI crude oil is trading near $77 a barrel
Dan Eberhart, CEO of oilfield services provider Canary, argues the supply crunch and increased regulations from the Biden administration for the energy industry contribute to the 'perfect brew for higher oil prices.'
Soaring coal prices could be the "canary in the coalmine" for the more important commodity oil, according to JPMorgan Chase & Co.
While oil prices are trading at their highest levels in seven years, other energy forms, like coal, LNG, natural gas electricity and uranium, are holding at or near all-time highs.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| USO | UNITED STATES OIL FUND - USD ACC | 69.75 | -1.54 | -2.16% |
"We believe the evolution of coal prices might reflect supply, demand, cost of capital and energy transitioning issues for all fossil fuels, and it would certainly be possible that oil prices will follow the same pattern (inflation adjusted for oil, that would be in a $150-200/bbl range)," wrote a team of JPMorgan Chase & Co. strategists led by Marko Kolanovic.
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Current issues in the energy market are a combination of "greenflation," or the shift to clean energy, supply chain problems resulting from the pandemic and geopolitical tensions with OPEC+, Russia and Iran.
Those have combined to drive West Texas Intermediate crude oil to about $77 per barrel, up from around $48 at the beginning of this year.
Current energy prices will not "have a significant negative impact on the economy," they wrote, noting that the economy and the consumer were "functioning just fine" when oil averaged $100 per barrel in 2010 through 2015.
In fact, they say oil could reach $130 to $150 per barrel before equity markets and the economy would begin to waver. The 10-year yield would have to reach 2.5% or 3%, up 100-150 basis points from current levels, before higher yields would become problematic.
The S&P 500 recently experienced its first 5% pullback in a year. Kolanovic, one of the market’s biggest bulls, says the selloff provided investors the opportunity to rotate into economic-sensitive stocks as a cyclical recovery can last for at least the next three to four months but more likely longer.
He says that will be aided by what looks like an end to the pandemic.
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"We believe that this [the delta variant] was the last significant wave, and an effective end to the pandemic," Kolanovic wrote in a recent note to clients. "New COVID treatments are also supportive of this view."