Recession Bets On Reduced Oil Demand May Be Misplaced

It currently feels as if people have been talking about an incoming recession for an entire year, and short positions in oil contracts continue to increase as a result. There is a chance though that the unique dynamics of remote work mean that commuting, and the related oil demand, actually increase in a recession. While commuting is just one part of the total energy demand equation, an increase during a recession would certainly be a surprise and the job of writers is to highlight what people may not be thinking about (and then for everyone to say it’s dumb).

The oil price has always been one of the better ways to place a bet on economic strength or weakness. In the past decade, it has even started to be viewed as one of the cleanest bets, as central banks have gained more and more influence over equity prices. If you don’t believe this, think about the market participants that made short bets to protect their investors as we witnessed the start of the largest pandemic in our lifetimes just a few years ago. Central banks immediately increased liquidity and stocks they shorted started reaching new highs in just a few months. They could have been right on absolutely everything except the level of central bank influence that occurred, which happened quickly.