Uncertainty in Oil Darkens Investor Sentiment
The average price of regular gasoline in the U.S. is $4.19, according to GasBuddy, as of March 8. The price of oil briefly hit $130 on Monday.
Oil is reacting to the enormous amount of uncertainty generated by Russia’s war on Ukraine.
- The U.S. doesn’t import much oil from Russia but appears set to ban imports.
- Europe imports about 25% of its oil from Russia, per CNBC. It is reluctant to ban Russian imports, but major oil companies are backing away from Russia, refiners are hesitant to process Russian oil, and banks are reluctant to finance shipments.
- Without Russian oil, an already tight oil market becomes much tighter.
Bottom line
Investors are grappling with an enormous amount of uncertainty.
Today, the U.S. economy is expanding. It is supported by healthy consumer balance sheets, job growth, and rising corporate profits.
Yet, soaring energy prices threaten to slow consumer spending. At a minimum, the rate of inflation will jump, at least over the shorter term, and it complicates the Fed’s job, as it hopes to rein in inflation.
Expect volatility, as investors wrestle with oil prices and attempt to price in U.S. economic growth over the rest of the year.
Given poor sentiment, any pleasant surprises about the war could spark a short-term rally and relieve some pressure on oil prices.
For long-term investors, a well-diversified investment portfolio has historically been the soundest way to manage volatility.
