Quote:The only major asset that has really gained ground this year is energy, with oil surging 45%. So the call of day goes to Dhaval Joshi, chief strategist for BCA Research’s Counterpoint, who says oil prices CL.1, -0.68% will halve, to $55.What he calls “the everything sell off” in 2022 has its parallels to 1981. Back then, oil producers Iraq and Iran were at war, just as commodity producers Russia and Ukraine are fighting today, and the Federal Reserve responded with aggressive interest-rate hikes. Joshi points out that there has never been a recession in which oil prices did not collapse, even in the stagflationary 1970s, as they fell 25% in 1974. The declines are particularly steep since oil prices also tend to rise ahead of slowdowns, tipping already fragile economies into recession.
Oil price drawdown
- 1974 -25%
- 1981-82 -30%
- 1990-91 -60%
- 2000-01 -55%
- 2008 -75%
- 2015 -60%
- 2020 -75%
Coming back to 2022, Joshi says applying the median drawdown in the last six recessions, of 60%, to the peak of $130, means oil will plunge to $55. Oil at $55? Why one strategist is betting against the only winning asset class of 2022.