Almost any direction you look, it points to higher oil prices and a potentially damaging effect on the global economy — one the market will have to factor in once and for all.
To be sure, the stage is set for a renewed push higher in oil prices after a momentary relief sell-off.
President Biden’s “cannot remain in power” comments with respect to Russian President Vladimir Putin at this weekend’s NATO meeting will likely be seen as bullish oil prices.
Then there is the delayed domino effect of harsh sanctions by the West on Russia beginning to infiltrate through the oil markets.
“Major energy companies and commodity-trading houses balked at buying crude oil from Russia in the days following the invasion of Ukraine. Banks also stopped financing these trades, shippers refused to load cargoes and insurers stopped covering them, fearful of running afoul of sanctions or upsetting company stakeholders,” The Wall Street Journal writes.
That climate has the Financial Times (and pros on Yahoo Finance Live) warning of $200 oil prices.
As one would expect, oil prices at such elevated levels will hurt corporate profits — perhaps big-time. Let’s use tech giant Amazon — which operates large oil-sucking distribution centers and an army of gas-powered trucks (until Rivian delivers the company thousands of EVs in 2040) — as a benchmark as to what could be coming once earnings season starts soon.
The higher cost for diesel caused Morgan Stanley analyst Brian Nowak to mark up his 2022 fuel expense estimate for Amazon by a whopping $6 billion. That is billion with a b.
Even before oil prices blew by $100 a barrel after the start of the Russia war on Ukraine, companies were signaling things could get hairy mostly due to energy-related inflation.
FactSet notes that 95 S&P 500 companies have already issued EPS guidance for the first quarter — 66 of them have been warnings. The number of companies releasing first quarter warnings is above the five-year average, FactSet says.
So whether it’s $90 oil (as seen just before the war), $100 oil, $150 oil or $200 oil rest assured companies are up against higher oil prices right now. And that means your portfolio may be up against it very soon.
Happy trading!
