• Clifford Bennett , Chief Economist at ACY


• 24.03.2022 12:15 pm
#stocks , Clifford Bennett has over 36 years of market trading experience and was named the 'World's most accurate currency forecaster' by Bloomberg New York. He has advised some of the world's largest organisations, billionaire investors, and political leaders and spoken at the prestigious APEC summit on reserve currency issues. Clifford is the Chief Economist at ACY Securities.

As the shift across all markets away from war begins to fade, as in stocks are looking tired here and the US dollar is turning back up as well, Oil is again leading and precisely pointing the way.

The war in Ukraine remains one of the most important economic and financial market crises of our time.

It is vitally important that investors consider the Ukraine War has not yet been fully priced by financial markets. Due to the current always looking across the valley positive sentiment spin that has become so prevalent. With far greater participation in stock and other investment markets than ever before in history, everyone has an interest, a subjective bias for markets to continue their spectacular rally of the past two years.

Market participants, commentators and economists are not fully appreciating the long term European and global economic disruption of the Ukraine War. There is this expectation that as with the Covid stock market rally, this too will end or simply be somehow magically discounted so as to continue to march higher. It is after all what we all want.

Having expected an un-winding of the high speculation long positioning in Oil, now complete, the more profound underlying reality of the fundamental pressures of war are again coming to the fore. Oil is again on the rise. It is highly likely Oil will exceed $150 barrel in the coming weeks and months. Just how high it can go is an open question?

This is a market that could so severely over-shoot to the downside that it actually went negative in 2020. This is how quickly fortunes can change in the world’s primary energy market. With flow on effects across all energy prices.

That Oil could over-shoot to the downside to below zero, does make one wonder just what a full market panic to the upside would like? Did we just see it, or was that recent high just the first wave of the Ukraine rally?

The reality of the Ukraine War is not what we would like it to be. It will be on-going as Russian forces stall at times, but remain relentless nonetheless.

The most dangerous global economic outcome, more than the now inevitable recession in the EU, is the inflation tsunami that has already been unleashed. Across food and energy markets there will now be a steady flow through from wholesale to consumer prices. This is likely to push US inflation to above 10% and there is nothing the Federal Reserve can do about it. For raising interest rates in the US does not stop the war in Ukraine.

Higher sustained oil prices would generate on-going high inflation and much higher interest rates. This represents a major threat to the state of the global economy over the next 2-5 years.

The further risk is that Russia may in retaliation to sanctions, wind back the gas pipeline to Europe by even 10%, or indeed close it for a period just to make a point. Some estimates place Germany’s reliance on the pipeline as highly as 55%, and for all of Europe at 30%. Even at 50% and 20% respectively, any turning off of the tap will have severe and immediate economic implications. If the gas flow were to be stopped completely, the lights would literally go out in parts of Germany.

The impetus and shock this would provide to the energy market is unfathomable. In this scenario, Oil could easily surpass $200, and perhaps even reach $250. Please note, this is not my central forecast. It is a further risk scenario that investors should be mindful.

The most likely scenario is that the speculative long positioning having now been washed out of the market, the real buying, particularly by national governments will become sustained. Just on the basis of the new reality we are already in, we should expect around $150 to become the new norm in the not too distant future.

My primary target for Oil, based on the likelihood of a longer and increasingly significant war than any of us would like, is $180.

The further risk scenario as outlined above, is $250.

These numbers may sound high, but Oil did overshoot to sub-zero.

Clifford Bennett
ACY Securities Chief Economist.

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

All commentary is on the record and may be quoted without further permission required from ACY Securities or Clifford Bennett.

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