Oil Price Surge Raises Recession Fears and Interest Rate Hike Odds

This week's oil price surge has sharply raised the odds of a Fed interest rate hike next week and re-launched the recession conversation. Brent Crude prices topped $100 per barrel for the first time since July, while the U.S. benchmark, WTI Crude, exceeded $100 a barrel as well.

The global and U.S. economies have remained resilient in the face of the worst energy market disruption in history, with oil and LNG flows choked at the Strait of Hormuz. However, most of these cushions have now vanished, including low crude stocks in the strategic reserve in the United States, which are at their lowest level since the early 1980s.

Goldman Sachs currently projects a 15% chance of recession within 12 months, down from 30% in March. However, if oil and fuel prices spike further, the odds would rise. The CME FedWatch key rate gauge showed that traders put the chances of a 0.25-basis point hike at Fed's meeting next week at 72.4%, up from 49.4% a week earlier.