Monday oil prices and oil stocks soared on the bullish case that the surprise OPEC+ production cut will push gasoline to $4 a gallon and oil to $100 a barrel.
Not everyone buys the bullish case–at least not after a few days of what these analysts call a knee-jerk reaction.
And they’ve got a point: If the U.S. economy is sliding into a mild recession for the second and third quarter, which is the majority view at the moment among economic forecasters, then U.S. demand for oil will fall and we’re likely to be looking at a top of $90 a barrel rather than $100.
The bullish view on gasoline prices rallying to $4 is stronger, to my mind, than the case for $100 a barrel oil.
The national average at the pump right now is already $3.50 a gallon. So it wouldn’t take much to push the price to $4.00.
Especially since prices were already expected to rise with the onset of the peak summer driving season.
My suggestion to investors and traders is to make your oil and oil stock bets based on $90 a barrel rather than $100. In other words, participate in this rally if you already have exposure to the sector (or plan to put some on soon) but don’t blindly chase the rally beyond the April 27 report on first quarter U.S. GDP. First-quarter growth is expected to be strong 0.7% or better for the first quarter with the economy slumping in the second and third quarters. That positive advance estimate will convince some investors that the oil and gasoline markets aren’t looking at a drop in demand from a U.S. recession. So I’d be willing to ride the rally until then and re-evaluate around that date based on the strength of the rally and the consensus trend for U.S. economic growth in the second and third quarters.
