Global Equity Weekly

March 13, 2026 | 16:27

Oil Shock: The Same, but Different

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

It's all oil, all the time, and near-$100 prices for WTI have pushed out expectations of Fed easing, while at the same time are chipping away at growth forecasts. Suffice it to say, that's not a good combination for the equity market. The S&P 500 slipped 1.6% on the week, with industrial and financials down most, while the TSX also gave back 1.6%.

Oil price shocks are not new for the U.S. economy, but their impact has evolved. There are a number of factors that will help cushion the impact during this episode, and a few things still to worry about. We judge that the net risks land on the upside for inflation and downside for growth, although more moderately so than in the past.

The U.S. economy is less energy-intensive today than during past oil price shocks. At roughly 20 million bpd of consumption, that’s less than 0.7 barrels to produce $1,000 of real GDP (in 2025 dollars). That compares to around 1 barrel 20 years ago; and more than 2 barrels during the bad days of the 1970s shocks. If we scale the current surge in oil prices for the fact that intensity is lower, it suggests there is plenty of room still between where we are now and the type of shocks that seriously derailed growth or triggered recessions. In fact, in those terms, you’d probably need to see WTI push to the $120-to-$140 range to match the magnitudes seen during the Russian-Ukraine conflict, the pre-GFC run-up or the early-1990s Iraq invasion of Kuwait.

The U.S. is also a major oil producer now, and a net exporter of energy products, a stark change from decades past. The U.S. produces a record 14 million barrels per day, up from just 5 million at the onset of the financial crisis and around 7 million in the early 1990s. While domestic production could be slow to respond as firms improve balance sheets, production should chase prices higher—and U.S. production is agile.

Source: Bloomberg.

Higher energy efficiency over time, and a general softening in prices, have pulled the weight of energy in the U.S. CPI down to around 6.4%, the low end of the range (6%-to-12%) seen since the 70s. So, while there will be immediate passthrough to headline inflation, the magnitude to start should be at the low end. The stage of the cycle also matters, and it helps that this shock is set against a backdrop that was seeing sturdy economic growth (especially private domestic demand), healthy earnings, disinflation and Fed easing.

On the flip side, while efficiency has improved, the U.S. consumer still accounts for a near-record 68% of U.S. GDP. The confidence impact of a drawn-out conflict, in addition to the direct impact on disposable income and inflation expectations, still matters. On the household balance sheet, equities and related holdings now make up a near-record 53% of financial assets, leaving the consumer exposed to a deterioration in financial conditions. The concern is that higher inflation prevents the Fed from easing, thus removing an expected support for already-stretched valuations. Finally, tools like the SPR can be used to dampen price movements, but those reserves in the U.S. have thinned. This week’s announced 172 mln barrel release (400 mln by the IEA in total) was swallowed by the market. Recall that the U.S. SPR was already drawn down by more than 250 mln barrels during the Russia-Ukraine conflict, and had only been rebuilt by less than a third. After this week’s announcement, current levels will be running at around 240 mln barrels, the lowest level since the early-80s.

Major Index Performance

North American Sector Performances

(% change over period)

Table 1 - S&P 500 Sector Performance

Source: BMO Economics, Bloomberg

Table 2 - TSX Sector Performance

Source: BMO Economics, Bloomberg

TSX Relative Sector Performance

(relative to the index, year-ago = 100; dashed line = 200-day m.a.)

S&P 500 Relative Sector Performance