What Is The Pain Threshold When Will Higher Oil Prices Drive A Bigger Selloff

Despite a recent spike in Brent crude prices, the author argues that the current levels remain below the $110/bbl threshold required to trigger a major selloff in equities and credit markets. The market has not yet met the necessary conditions of a sustained price surge, hawkish central bank response, or widespread macroeconomic deterioration.

Key Takeaways

• 1.Current oil price levels around $80-90/bbl are not a sufficient pain threshold for a major risk-asset selloff.
• 2.Historical data suggests that an oil price above $110/bbl on a sustained basis is the threshold for significant equity and credit market vulnerabilities.
• 3.The current oil shock fails to meet three key criteria for a major selloff: it is not a large sustained spike, has not forced a sharp hawkish central bank response, and has not yet caused meaningful macro damage.

Table of Contents

• What does it take to generate a bigger selloff?
• Are we seeing a large and sustained oil price spike?
• Are we seeing a sharp hawkish response from central banks to deal with the resulting inflation?
• Do we see meaningful economic damage in the data?
• So where does oil need to get to cause a meaningful selloff?
• Appendix 1

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