Oil Relents

By Alex Eule |  Thursday, March 3

Peak Oil? The trading day started in familiar fashion today, with oil continuing its ascent. At one point, crude oil ticked above $116 a barrel, its highest level since September 2008. As we wrote yesterday, the higher oil goes, the more recession worries start to mount. So it was notable that in the middle of the day, oil changed direction.

High gas prices are becoming a political problem for Washington. At a briefing, White House Press Secretary Jen Psaki reiterated that the Biden administration wasn't planning to directly ban the sale of Russian oil, which is currently allowed within the sanctions program. The first question of the briefing was about oil prices, and Psaki said: 

...we don’t have a strategic interest in reducing the global supply of energy.  And that would raise prices at the gas pump for the American people, around the world, because it would reduce the supply available.  And it’s as simple as: Less supply raises prices.  And that is certainly a big factor for the President in this — at this moment.

WTI crude settled at $107.67 a barrel, down 2.6% on the day. The shift in sentiment also came on hopes that a nuclear deal with Iran was close at hand.

After a rise yesterday, the 10-year Treasury yield today continued its recent decline, settling at 1.843%. The yield is down 20 basis points from its Feb. 15 high of 2.044%. For much of 2022, yields surged  -- and stocks, notably tech stocks -- moved lower. But the decline in yields has come without as much fanfare. The Nasdaq is still down 16% since mid-November. 

Analysts at Citi Research think the inverse relationship between yields and stocks could soon resume. Today, the global equity strategy team at Citi raised its view of U.S. equities to Overweight (the equivalent of a Buy): 

The latest plunge in real yields does imply that this year’s derating of Growth stocks should stop. It means that we tilt back towards Growth in our global equity strategy. We do this by raising US equities and global IT [information technology] back to OW.

Other investment strategists continue to pound the table for U.S. stocks, as well, even in the face of inflation fears and Russia's growing war.  

"There's hope for the future despite hideous inflation," Louis Navellier wrote to investors today. "Let's just remember that stocks are a great inflation hedge, that companies that are profiting from all this commodity inflation by raising their prices, that these stocks are the oasis out there. It's time to go bargain hunting. 

Today, though, the market wasn't buying the bullish view. The tech heavy Nasdaq Composite had a particularly rough day, down 1.6%, while the broader S&P 500 fell 0.5%. The more value-focused Dow Jones Industrial Average was off 97 points, or 0.3%. 

Tomorrow's trading is likely to be dictated by the February jobs report. It's the final jobs report before the Federal Reserve's all-important March meeting,  when Fed policy makers are expected to begin a series of rate increases. Fed Chairman Jerome Powell has made it pretty clear he intends to stick with a quarter-point increase, but a tight labor market could determine how aggressive the Fed gets in the months to come. Economists have forecast a February jobs gain of 400,000, with the unemployment rate falling to 3.9% from 4.0%.