Higher Oil Prices Could Bring Next Recession

Talk of recession has been linked to inverting Treasury yield curves as of late and now, it appears higher oil prices are making its way back into the pre-recession lexicon in the markets. The concept is not new as higher oil prices have been a precursor in the last five recessionary periods in the U.S.

“Quickly rising oil prices have been a contributing factor to every recession since World War II,” said Moody’s chief economist Mark Zandi.

Related: A Big Week For This Oil Services ETF

Oil prices have seen a remarkable run up since January 2016 when crude prices went as low as $30.29. Since then, crude has more than doubled to its current level of $67.78 as of 1:00 p.m. ET.

Higher Oil Prices Could Bring Next Recession 1In the exchange-traded fund space, oil ETFs have been a major beneficiary of this run up in prices. United States Oil (NYSEArca: USO), ProShares Ultra Bloomberg Crude Oil (NYSEArca: UCO) and Invesco DB Oil (NYSEArca: DBO) have all made extraordinary gains–USO up 25.40% year-to-date and 58.53% the past year; UCO up 46.67% YTD and 131.36% the past year; DBO up 22.76% YTD and 54.40% the past year–all based on Yahoo! performance numbers.

Given the run up in oil prices, Zandi postulated that a recession could come much sooner rather than later.

“My recession odds for 2020 have significantly increased since late last year,” said Zandi.