Zacks Investment Management

Malin P. from Helena, MT asks: Hi Mitch, I’d like to hear your comments regarding the U.S.’s ban of Russian oil. What do you think this will do to gas prices, and will high gas prices eventually hurt the economy and markets? Thank you.

Mitch’s Response:

Thanks for writing, Malin – I know a lot of readers share your concern. Last week, the U.S. moved forward with a ban on imports of Russian oil, natural gas, coal, and refined petroleum products. The U.S. is a net exporter of oil and gas, but still relies on imports because we consume more than we produce, and because imports from other countries can more easily arrive at refineries on the east and west coasts (versus being transported from the Gulf Coast).¹

In terms of fossil fuels imported by the U.S., a significant majority comes from Canada. Russia only accounts for about 8% of our imports – not zero, but also not a huge number. Losing this source of oil without replacing it immediately and in kind will no doubt place even more upward pressure on oil and gas prices, the latter of which are already high. Last week, the national average for a gallon of gas rose 46 cents, to a record $4.06 a gallon.

What Can You Do to Prepare for a Potential Bear Market?

Amid oil concerns and market volatility comes a lot of worries from investors about how to manage their investments if the market reaches bear market territory. But don’t despair, you can potentially avoid the most harmful hazards of a bear market by using some of the useful tools we offer in our free guide – The Zacks Bear Market Survival Kit.²
 
In this guide, you’ll get our viewpoint on the most important moves you can make to weather a recession. Don’t wait—if you have $500,000 or more to invest, get this guide before the storm hits.

I think we can reasonably expect gas prices to move higher in the short-term. The simple laws of supply and demand tell us as much. But I also think we could see pressures ease later in the year, as U.S. production ramps higher in the coming months. Some of the major domestic producers like Exxon and Chevron are boosting production in the Permian Basin, with Exxon increasing production by 100,000 barrels per day this year and Chevron adding 60,000 per day. According to the Energy Information Administration, active rig counts for oil and gas have been steadily increasing over the last few months, and there is a significant backlog of permitted sites that have not been drilled yet. Spare capacity in U.S. fossil fuel markets is there, and shale producers are becoming more eager to take advantage of higher prices.

As more production comes online, it is important to remember that markets are forward-looking, meaning that the expectation of rising supply in the future could eventually tame prices in the medium-term. All of this takes time, but rising rig counts and statements from shale producers indicate a production increase is underway.

As for whether higher gas prices in the near-term will hurt the economy and/or markets, I think the fear of economic pain is greater than what the reality will be – which is usually a positive for markets. Of all the spending Americans do, only about 4% of it goes to energy, a number that has persistently fallen because of energy efficiency (think higher gas mileage) and lower prices. In 1980, gallon of gas cost $1.25, but the average worker was only earning $6.75 an hour. Not only did the gas not get people as far, it was also costing them more as a percentage of their discretionary income.

Higher gas prices in 2022 are certainly not an economic positive – but I do not see them as a major economic negative, either. Wages are moving higher, the U.S. labor market has more jobs available than unemployed people, and U.S. households are in strong financial positions in aggregate.

It’s important to remember that volatility is a natural (if unpleasant) part of the economic cycle. Instead of letting fear of a potential bear market guide your investment decisions, you can avoid the most harmful hazards of it by making use of some useful tools in our free guide, “The Zacks Bear Market Survival Kit.”⁴ These tools include:

• Understanding how bear markets work, and how long they last
• The strategies we believe are most effective for mitigating downside over time
• The most harmful thing investors do in a bear market, in our opinion
• Plus, more ways to potentially survive a bear market and achieve your long-term goals 

If you have $500,000 or more to invest, get our free guide today. You’ll get our viewpoint on the most important moves you can make to weather a recession. Don’t wait—get this guide today!

Disclosure