{"id":10183,"date":"2022-02-22T03:43:43","date_gmt":"2022-02-22T03:43:43","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=10183"},"modified":"2022-02-26T13:05:36","modified_gmt":"2022-02-26T13:05:36","slug":"will-rising-fuel-prices-crush-the-bull-market","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/will-rising-fuel-prices-crush-the-bull-market\/","title":{"rendered":"Will Rising Fuel Prices Crush the Bull Market?"},"content":{"rendered":"\n<p>Oil prices have been marching higher for months, a fact that\nmany readers likely know based on recent trips to the pump. The cost of a\nbarrel of West Texas Intermediate oil has soared from the low teens in April\n2020 to over $90 a barrel today, as surging demand continues to be met with\nconstrained supply. Many economic forecasters and energy analysts are calling\nfor $100 per barrel and soon.<sup>1<\/sup><\/p>\n\n\n\n<p>If oil prices continue to move higher, costs for businesses\nand consumers will continue to go up as well, which could sap margins and\nspending, respectively. This begs the question: will high oil and gas prices\ncrush this bull market?<\/p>\n\n\n\n<p>I think the answer is no. The first reason I\u2019ll give is based\npurely on history, and the second reason is based on a supply and demand\nimbalance I think should correct later this year. <\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2022_02_21&amp;content=stock_market_outlook_report\">If the Bull Market Dies, Are Your Investments Prepared?<\/a><\/strong><\/p>\n\n\n\n<p>With concerns that rising oil prices could kill the economic\nexpansion and bull market, many investors are wondering if their investments are\nprepared for what\u2019s to come. This can lead investors to make drastic moves and\nfall prey to mistakes like trying to time the market.<\/p>\n\n\n\n<p>To help you protect your investments and make decisions\nbased on fundamentals and data, I am offering all readers a first look into our\njust-released <strong>March 2022 Stock Market\nOutlook report<sup>2<\/sup>.<\/strong> This report will provide you with our forecasts\nalong with additional factors to consider:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks rank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks view on equity markets<\/em><\/li><li><em>What produces optimism in 2022?<\/em><\/li><li><em>Zacks forecasts for 2022<\/em><\/li><li><em>Zacks ranks industry tables<\/em><\/li><li><em>Sell-side and buy-side consensus<\/em><\/li><li><em>And much more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn\nmore about these forecasts, click on the link below to get your free report\ntoday!&nbsp;<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2022_02_21&amp;content=stock_market_outlook_report\">IT\u2019S FREE. Download the Just-Released March 2022 Stock Market Outlook<\/a><\/strong><\/p>\n\n\n\n<p>Let\u2019s start with the history. Many readers may not remember,\nbut there was a period from mid-2011 to 2014 when oil prices hovered around\n$100 a barrel pretty consistently (circled in red on the chart below). Gas\nprices were quite high then, too, even higher than they are in parts of the\ncountry today. <\/p>\n\n\n\n<p>The stock market did not seem to mind \u2013 during the period\nfrom 2011 to 2014 when a barrel of oil cost more than $100, the S&amp;P 500\nwent up +65.1%.<sup>3<\/sup> The U.S. economy grew throughout that period as\nwell, albeit at modest rates. Modest GDP growth was more due to the economic\n\u2018hangover\u2019 from the Global Financial Crisis than high oil prices, in my view. <\/p>\n\n\n\n<p>The first chart below shows the period when oil was above\n$100 a barrel, and the second chart shows the S&amp;P 500 from 2012 onward. As\nyou can see, higher oil prices may not have necessarily helped the economy and\nmarkets, but they certainly did not hurt. <\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/pic1-3-1024x395.png\" alt=\"\" class=\"wp-image-10184\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>4<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/pic2-1-1024x395.png\" alt=\"\" class=\"wp-image-10185\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>5<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p>The second reason I do not think higher oil prices will kill\nthe economic expansion and\/or bull market is because of supply forces. <\/p>\n\n\n\n<p>The period of high oil prices from 2011 to 2014 gave way to a\nshale boom in the U.S., which, coupled with OPEC also increasing supply, caused\noil prices to plummet (readers can see the drop-off in prices around 2015). The\nwell-remembered U.S. shale boom was heavily financed with debt, which\nultimately led to a wave of bankruptcies and failed companies when oil prices\ncrashed. Some analysts believe the lessons learned in that period will result\nin broad reluctance for shale producers to take advantage of high oil prices\nthis time around, meaning supply will remain constrained in 2022. But the data\nso far suggests otherwise.<\/p>\n\n\n\n<p>In the U.S. Permian basin, shale exploration and development\nrig activity are back to about 70% of pre-pandemic levels, and oil production\nis close to crossing all-time highs above 5 million barrels per day. In the\ngas-rich Haynesville close to the U.S. Gulf Coast, activity is just about at\nits highest level in a decade. U.S. oil production in February is expected to\nrise to 8.54 million barrels per day, which is only 730,000 barrels less than\nthe record set in November 2019. Back then, oil prices were $20 <em>lower <\/em>than they are today. <\/p>\n\n\n\n<p>At the end of the day, U.S. shale producers are very wary of\ntaking on big debt and overproducing as they have in the past. But they are not\nwary of ramping up production to take advantage of higher prices. As of late\nlast year, the break-even cost for shale producers was $37 per barrel. With oil\ntrading above $90 per barrel, the incentive to come back online is high.<\/p>\n\n\n\n<p>The other side of the supply equation is, of course, OPEC. The\norganization has indicated on a few occasions its intention to increase\nproduction and most recently announced a 400,000 barrel-per-day increase in\nMarch. But figures from OPEC are not always reliable, and to date, OPEC\nproduction remains about 5 million barrels per day below peak levels.\nMarket-watchers are understandably worried about the impact of a Russian\ninvasion of Ukraine, given Russia\u2019s status as a significant oil and commodities\nproducer, particularly for Europe. This possibility remains a wildcard, and\ncould give way to more choppiness and even higher prices in the near term \u2013 an\noutcome I think would simply shift supply elsewhere, and bring even more\nproducers online. <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n<p>Higher oil prices are not ideal for energy-intensive\nbusinesses or consumers, but they are also not a death knell for earnings or an\neconomic expansion. The U.S. economy was notably weaker in the 2011 to 2014\nperiod than it is today, in my view, and the economy and markets managed to do\njust fine during that period of $100+ oil.<\/p>\n\n\n\n<p>It may not happen immediately but eventually sustained\nhigher prices will encourage more production, particularly from U.S. shale\ncompanies. We are starting to see signs of that now. As production ramps up and\nmore supply comes online, price pressures will eventually ease, in my view. I\ndo not necessarily see this as a multi-year process as we saw in the previous\ncycle \u2013 U.S. shale companies can bring production online relatively quickly and\nefficiently, and with oil close to $100 per barrel, I believe they will. <\/p>\n\n\n\n<p>If you are uncertain about what to do with your investments during a time like this, I recommend that investors focus on factors that can protect their investments for the long term. To help, I am offering all readers our\u00a0<strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2022_02_21&amp;content=stock_market_outlook_report\">Just-Released March 2022 Stock Market Outlook Report<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2022_02_21&amp;content=stock_market_outlook_report\">6<\/a><\/sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2022_02_21&amp;content=stock_market_outlook_report\">.<\/a><\/strong><\/p>\n\n\n\n<p>You\u2019ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks rank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks view on equity markets<\/em><\/li><li><em>What produces optimism in 2022?<\/em><\/li><li><em>Zacks forecasts for 2022<\/em><\/li><li><em>Zacks ranks industry tables<\/em><\/li><li><em>Sell-side and buy-side consensus<\/em><\/li><li><em>And much more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Higher oil and gas prices are impacting consumers and businesses\u2014but increased production will ease price pressure in the months ahead <\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-10183","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10183","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=10183"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10183\/revisions"}],"predecessor-version":[{"id":10195,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10183\/revisions\/10195"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=10183"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=10183"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=10183"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}