Oil prices have risen quickly in the recent months and at the rate prices are increasing, it could send the U.S. into a recession, UBS warns.
U.S. crude oil prices were sitting at $72.13 per barrel on Wednesday, gaining nearly 40 percent in the past year. The price surge over the past year has concerned financial institutions and especially with recent ongoing events, prices are not expected to settle any time soon.
UBS predicts if oil prices hit $100 a barrel, it could send the U.S. spiraling into a recession. Prices are on track to hit that mark due to strong demand and supply cuts.
The sharp price rise in oil has caused fuel prices to rise while the amount of money consumers are spending have fallen, which affects oil producing nations.
UBS said until now, oil prices have fallen between those two poles. UBS data shows that the crude oil price this past year marks the 11th biggest oil price spike in the past 70 years. UBS still notes that this rally is smaller than previous ones preceding a recession.
"However, now that we are getting closer to $100/bbl the net impact of higher oil prices is again becoming a net negative," UBS economists said in a research note. "The global sweet spot — where oil prices may have positively contributed to global growth — seems to be somewhere between $50/bbl and $70/bbl."
Oil prices hitting $100 a barrel would lower UBS’ global estimate growth in 2019 down from 4 percent to 3.86 percent. UBS says global inflation will top out at around 4 percent if prices hit the $100 range, higher than its 3.1 percent increase forecast in consumer prices for the month of July.
"We should take seriously the possibility of an oil price spike … not least because oil spikes preceded 5 of the last 6 recessions (in the US)," UBS said.
Many ongoing issue globally have caused the surge in prices for oil recently.
A deal among OPEC, Russia and other producers to cut output and drain a crude glut has shrunk oil stockpiles. Meanwhile, ongoing global tensions and the U.S. President Donald Trump exiting the Iranian nuclear deal and placing sanctions are creating concerns regarding oil supply, according to CNBC.
The U.S. is struggling to meet the demand from consumers, which has also caused oil prices to rise. UBS forecasts under investments in big oil projects will impact supply next year.