March 7, 2022.
Bank of America Research said in a note on Friday that the surging price of oil is the most significant risk to the U.S. economy.
In a note to clients, the bank's head of global economics research explained a scenario in which GDP growth could be cut by 1% if oil prices stay above $100 per barrel.
If the U.S. or NATO decide to curb Russian energy exports, the bank's analysts said an even higher cost might be in the cards. Harris believes that a 2% hit to GDP growth is possible if oil prices go up.
It would be a major shock to global markets if the West cut off most of Russia's energy exports.
The bank said that this is a scenario and not a forecast, given the difficulty in predicting how different countries will act in the future.
The price of a light crude oil that comes from oil fields in the North Sea between the Shetland Islands and Norway moved to highs of $139.13 on Monday.
While prices have since fallen back to around the $120 per barrel mark, the sharp increase in energy prices has only exacerbated investors desire to reduce exposure to risk assets. The S&P 500 and the Nasdaq both fell into bear-market territory in the last year.
The idea of a Russian oil embargo catching on in Washington caused the sudden rise in oil prices on Monday. Although the initial U.S. and European sanctions were careful to leave Russian oil untouched, the tide could be turning.
The Biden administration and its allies have been discussing a potential Russian oil embargo in response to Putin's invasion of Ukraine, according to the Secretary of State.
The backlash against energy giants that have dared to continue purchases of Russian oil as the country becomes a pariah in the West may have contributed to the increase in oil prices.
Suppliers are facing a lot of public pressure to avoid buying oil from Russia.
The Minister of Foreign Affairs of Ukraine, Dmytro Kuleba, criticized Shell after its purchase of Russian oil.
JP Morgan warned investors about the impact of rising oil prices on U.S. and European economic growth over the weekend.
The consequences of a complete shut-off of Russia's oil exports to the US and Europe would be dramatic, according to the bank.
The price of oil has remained above $100 per barrel for the first time in three years, despite Russia's invasion of Ukraine. Russian oil exports were a small part of the global supply before the invasion. The market has been affected by the loss of those exports.
The U.S. gross domestic product grew at an impressive 7% in the fourth quarter of 2021.
The Federal Reserve Bank of Philadelphia surveyed 36 economists in February and predicted that real GDP will grow at an annual rate of 1.8% in the first quarter of 2022. The previous Fed survey had predicted 3.9%. Even though the U.S. economy added 678,000 jobs in February and the unemployment rate was 3.8%, the forecasters are more pessimistic.
On Monday, an economic advisor to the president of Ukraine urged the west to cut off Russian oil in an interview with CNBC. According to the Wall Street Journal, oil volatility is not going away. Kerry said it was something we were going to live with.
All Rights Reserved © 2024
