- Goldman Sachs stated that the current oil supply shock has a cautionary parallel in history, pointing to the one in the 1990s, triggered by Iraq’s invasion of Kuwait.
- This resulted in the removal of nearly 4 million barrels of oil from global markets, leading to a rise in the average monthly crude oil price from $17 per barrel to $36 per barrel.
- Crude oil prices ticked higher on Monday, hovering above $100 a barrel, even after President Donald Trump said Iran has largely agreed to the 15-point ceasefire plan.
Goldman Sachs analysts on Monday reportedly said markets are too hawkish on the Federal Reserve’s monetary policy outlook, as the ongoing war in Iran and a steep rise in crude oil prices have driven up expectations of a rate hike.
“The market has priced a much larger hawkish shock than historical experience would suggest,” said Goldman Sachs strategist Dominic Wilson, according to a report by CNBC.
According to the CME FedWatch tool, the probability of the Fed keeping interest rates in the current 3.5% to 3.75% range throughout 2026 stood between 79% to 97%, across the remaining Federal Open Market Committee (FOMC) meetings this year.
Cautionary Parallels To 1990s Oil Supply Shock
The firm stated that the current oil supply shock has a cautionary parallel in history, pointing to the one in the 1990s, triggered by Iraq’s invasion of Kuwait. This resulted in the removal of nearly four million barrels of oil from global markets, leading to a rise in the average monthly crude oil price from $17 per barrel to $36 per barrel.
Alan Greenspan, who was the Fed Chair during this shock, kept rates steady at an effective rate of 8.23% to 8.2% between January 1990 and September 1990, before beginning to lower them to 2.96% in December 1993.
“So we have precedent for the market leaning heavily on the risk of higher rates, and demanding a sizable risk premium, even though the Fed ultimately cut rates sharply in that episode,” the firm stated in its note.
Crude Oil Ticks Higher
Meanwhile, crude oil prices ticked higher on Monday to hover above the $100 a barrel level despite President Donald Trump stating that Iran has agreed to the 15-point ceasefire plan “for the most part.”
U.S. West Texas Intermediate (WTI) crude futures maturing in May gained about 4% to hover around $103 per barrel. Brent crude futures expiring in June rose more than 2% to $108 per barrel.
The United States Oil Fund ETF (USO) rose 4%, while the ProShares Ultra Bloomberg Crude Oil ETF (UCO) was up more than 1% at the time of writing.
When Is FOMC’s Next Meeting Scheduled?
The FOMC’s next meeting is scheduled for April 28 and April 29. According to the CME FedWatch tool, there is a 99.5% probability that interest rates will remain unchanged.
Meanwhile, U.S. equities were mixed in Monday’s opening trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.31%; the Invesco QQQ Trust ETF (QQQ) edged lower by 0.03%; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) gained 0.75%. Retail sentiment on Stocktwits regarding the S&P 500 ETF was in the ‘extremely bearish’ territory.
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