Need to Know: Oil at $55? Why one strategist is betting against the only winning asset class of 2022.


The miserable first half in financial markets comes to an end on Thursday.

The S&P 500 SPX, -0.07% has dropped 20%. Government bonds have been no cushion, with the S&P U.S. government bond index losing 8%. Gold GC00, -0.31%, that supposed inflation hedge, has lost 1%. And don’t even ask about crypto.

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, -0.26% 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.

Year Oil price drawdown
1974 -25%
1981-82 -30%
1990-91 -60%
2000-01 -55%
2008 -75%
2015 -60%
2020 -75%
Source: BCA Research

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.

He suggests shorting oil, or shorting oil versus copper HG00, -1.40%. Equity investors should underweight the oil sector versus basic resources, industrials or banks, and underweight oil-heavy stock markets like Norway.

“Suffice to say, these are all correlated trades. They will all work, or they will all not work,” he adds.

The OPEC+ meeting by videoconference kicks off at 7:30 a.m. Eastern.

The buzz

The economics calendar includes jobless claims — which have held up well despite recent recession fears — as well as the May reading of the Fed’s preferred inflation measure, the personal consumption expenditure price index. Chicago PMI data is due shortly after the open.

Sweden’s Riksbank hiked interest rates by a half-point, the latest central bank to act against inflation.

RH RH, -2.65% shares slumped in after hours trade as the home-furnishings retailer previously known as Restoration Hardware cut its outlook, citing a deteriorating economy. Earnings are due from the Walgreens Boots Alliance WBA, -0.22%, which just ended sale talks for its Boots U.K. drug store, and Constellation Brands.

Grayscale is suing the Securities and Exchange Commission after its latest bid to get a spot bitcoin exchange-traded fund approved. The cryptocurrency was trading under $20,000 again.

A woman pushing a baby stroller was shot and killed in the Upper East Side.

The markets

U.S. stock futures ES00, -1.49% NQ00, -1.81% were pointing sharply lower on Thursday, with the Dow contract YM00, -1.22% losing more than 300 points. The yield on the 10-year Treasury TMUBMUSD10Y, 3.058% fell to 3.06%.

Top tickers

Here were the most active stock-market tickers as of 6 a.m. Eastern.

Ticker Security name
TSLA, -1.79% Tesla
AMC, +2.02% AMC Entertainment
GME, -1.22% GameStop
NIO, -2.24% Nio
MULN, -7.38% Mullen Automotive
AAPL, +1.30% Apple
AMZN, +1.42%
BBIG, -4.83% Vinco Ventures
BBBY, -23.58% Bed Bath & Beyond
EVFM, -8.36% Evofem Biosciences
Random reads

A Vancouver radio station has been playing “Killing in the Name” on loop after two disc jockeys were laid off.

Los Angeles and Mumbai prove to be good hosts for big cats like mountain lions.

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