Oil’s perfect storm
26 January 2015
Standard Life Investments, the global investment manager, considers the winners and losers appearing between producers, exporters and importers after the recent collapse in oil prices.
This analysis is part of the latest edition of Global Outlook which highlights that households should benefit but oil service companies will suffer along with countries heavily dependent on oil exports.
Keith Skeoch, CEO Standard Life Investments said:
"The effects of the oil price decline are being priced in now, for example in the Russian currency, the share price of UK oil companies and the energy sector of the US high yield debt market. So on balance we conclude that supply side rather than demand side factors are more important, and into Spring 2015 we should start to see the more beneficial effects of cheaper energy feed through, in consumer spending and non-oil corporate investment."
Further comments from Standard Life Investments on the impact of oil on different markets:
Andrew Milligan, Head of Global Strategy: "Fund managers need to be highly selective, bearing in mind the different effects of significant currency and commodity movements, growing yield differentials and more volatile capital flows. As an example, oil is driving divergence between countries and sectors. This is another reason to stay neutral on emerging markets as a whole, relying on stock selection decisions to add greater value to portfolios."
Susan Tarry, Investment Director, European Equities: "The scale of oil's decline is such that it represents material incremental change for those stocks we already like or dislike for fundamental reasons. We see opportunity in the airline industry, Ryanair in particular, but envisage growing risks for companies like the oil equipment and services company Saipem."
Mark Vincent, Investment Director, GEM Equities: "On current estimates, oil at this level will cost Russia $100 billion a year, while sanctions due to the Ukraine crisis will account for a further $40 billion. But not everyone is lamenting the fall of the rouble. One company that is thriving is Norilsk Nickel, Russia's largest mining company which produces nickel and palladium, mostly sold overseas. These metals are priced in dollars which means the greenback's strength against the rouble is a boon for its operations and profits."
Richard House, Head of Emerging Market Debt: "Falling oil prices have significant implications for Venezuela, with the dominance of oil revenue in trade and fiscal accounts. Authorities seem reluctant to alter policies in response, and despite Venezuela having the largest oil reserves globally, the market prices in a high probability of sovereign default in the next few years."