Strategy Bulletin  

01/12/2014

LOWER OIL PRICES:GOOD NEWS, OR BAD?

The past months have been marked by weaker oil prices, with the Brent breaking decisively below USD 80/barrel, and now sitting at a record 5-year low of USD 68/barrel. With the lack of agreement among OPEC members to cut output, and subdued demand in a low potential growth environment, investors should probably factor in durably lower oil prices than they have been used to over the past 3 years. Is this good news or bad news?

Let’s consider the largest consumer in the world: the US economy. Although lower oil prices have historically been generally positive, not all periods of falling oil prices have led to an accelerating economy. Indeed, while lower prices coming from rising supply with resilient demand are good, declining demand is worrying. So, which is it today? Despite a small seasonal downtick in world demand in October, rising supply has clearly been the prevailing factor driving prices down over the past few months (Chart 1). As long as this is the case, lower oil prices are positive for energy consumers.

As regards the US, it is argued that lower oil prices will not benefit the country, which produces and exports much more energy than in the past. While we acknowledge this fact, it remains nonetheless a net energy importer, and a fall in Brent prices from USD 115/barrel to 70 represents an annual savings for the country of 0.4% of GDP. While it would have been greater in 2006 (1.0%), it remains far from negligible, especially with lower global potential growth. In addition, domestically, lower oil prices create a wealth transfer from the producer to the consumer. As the latter accounts for almost 70% of GDP and has a larger propensity to transform savings into expenditures than producers, the GDP boost will be magnified.

What about the rest of the world? Who are the winners, who are the losers? Net oil exporters will obviously suffer, while net oil importers will benefit. Chart 2 ranks 33 of the major world economies according to the size of their oil surplus/deficit. Not surprisingly, the Middle East will be the largest loser, although the region is immunised by its large fiscal surpluses. The situation in Russia is far more problematic, and the collapse in oil prices will certainly accelerate the country’s fall into recession. That said, the majority of the world economies are net oil importers/consumers and will therefore benefit from the slump in oil prices. As such, a further step towards discerning the prime winners is to look at the share of energy in their consumer price indices: the larger, the better. Chart 3 shows that India and some South East Asian countries are well positioned (Indonesia, Thailand). Turkey should also welcome lower oil prices as a means to reduce its large current account deficit and to better control inflationary pressures. Finally, Eastern Europe (Poland, Hungary, Czech Republic) as well as some core European countries (Spain, Germany) will get a nice boost from cheaper oil.

So, all considered, lower oil prices are a net positive for the global World economy. What opportunities on the investment side? Lower energy prices support consumers’ purchasing power. In the US, periods of negative oil returns have historically been associated with periods of outperformance of the MSCI Consumer Discretionary and Staples equity indices over the MSCI US equity index (Chart 4). An exposure to the US Consumer therefore appears to be a direct way to benefit from lower oil prices in USD.

News

La vigueur de l’euro devrait encore durer

Thought leadership

16/08/2017

Well-designed wealth – Life insurance

Thought leadership

31/07/2017

Emerging Markets - China spreading its influence

Quarterly Investment Strategy

20/07/2017

Japan - As good as it gets

Quarterly Investment Strategy

19/07/2017

Rethinking family governance

Thought leadership

18/07/2017

Europe - Euroscepticism losing ground

Quarterly Investment Strategy

17/07/2017

France Embraces Digital Revolution

Thought leadership

13/07/2017

United States - Neither inflation, nor recession

Quarterly Investment Strategy

12/07/2017

Mid-year review: so far, so good

Quarterly Investment Strategy

10/07/2017

Q3 2017 Investment Outlook

Q3 2017 Investment Outlook

Investment Strategy Podcast

06/07/2017

RETHINK EVERYTHING

Thought leadership

28/06/2017

Les philanthropes, la finance et la cité

Thought leadership

20/06/2017

RETHINKING EDUCATION

Thought leadership

15/06/2017

RETHINKING HEALTHCARE

Thought leadership

31/05/2017

Rethink Fixed Income with Climate Bonds

Thought leadership

29/05/2017

Rethinking “Next-Gen” Philanthropy

Thought leadership

24/05/2017

Gestion des fondations en transformation

Thought leadership

23/05/2017

The 100% Impact Investor

Thought leadership

19/05/2017

Asset Allocation – Keep looking on the bright side

Quarterly Investment Strategy

18/05/2017

China to take control of Asian trade

Investment Strategy

11/05/2017

French Elections Investment Strategy

French Elections Investment Strategy

Investment Strategy Podcast

10/05/2017

French presidential elections

Investment Strategy

08/05/2017

Hedge funds and rising interest rates

Investment Strategy

01/05/2017

French Elections

French Elections

Investment Strategy Podcast

25/04/2017

French Presidential Elections

Investment Strategy

24/04/2017

Japan: The longevity issue

Quarterly Investment Strategy

24/04/2017

Europe: Towards the end of negative rates?

Quarterly Investment Strategy

21/04/2017

Le Pen, Frexit and the future of the EU

Investment Strategy

10/04/2017

Q2 2017 Investment Outlook

Q2 2017 Investment Outlook

Investment Strategy Podcast

03/04/2017

Le franc, refuge des élections en Europe

Thought leadership

16/03/2017

Rethinking sustainable cities with Monocle

Rethink everything

24/02/2017

Brexit: Surviving outside the single market?

Investment Strategy

19/01/2017

Japan: an accidental winner?

Quarterly Investment Strategy

29/12/2016

Emerging markets: Recovery still in its early innings

Quarterly Investment Strategy

28/12/2016

Europe: Still much political risk on the horizon

Quarterly Investment Strategy

23/12/2016

United States: a tired economy about to get a vitamin boost

Quarterly Investment Strategy

22/12/2016

Investment outlook 2017

Investment outlook 2017

Investment Strategy Podcast

19/12/2016

OPEC rises from the ashes

OPEC rises from the ashes

Investment Strategy Podcast

04/12/2016

Diabetes : a game-changing technology

Numeric health

18/11/2016

Post-US election investment outlook update

Post-US election investment outlook update

Investment strategy podcast

16/11/2016

Positioning portfolios for President Trump

Positioning portfolios for President Trump

Investment strategy podcast

10/11/2016

Donald Trump elected President

Investment Strategy

09/11/2016

US election update

US election update

Investment Strategy Podcast

24/10/2016

Q4 2016 Investment Outlook

Q4 2016 Investment Outlook

Investment Strategy Podcast

21/10/2016

United States: Will policy support prolong the expansion?

Quarterly Investment Strategy

21/10/2016

Japan: Alone at the forefront

Quarterly Investment Strategy

19/10/2016

US presidential election: potential market impacts

Investment strategy bulletin

12/10/2016

A politically heated final quarter

Quarterly Investment Strategy

07/10/2016

The metamorphosis of philanthropy

Philanthropy

20/09/2016

US elections 2016: more status quo than system reboot

Investment strategy bulletin

16/09/2016

ASIAN PERSPECTIVES ON ENTREPRENEURSHIP

Entrepreneurship

25/08/2016

RETURN OF THE ‘NOTORIOUS BoJ’

Investment strategy Asia

09/08/2016

CAN GOLD REALLY ACT AS A HEDGE?

Investment Strategy Bulletin

22/07/2016

WHERE ART AND INSPIRATION MEET

Partnership

19/07/2016

POLITICAL RISKS AND ECONOMIC COUNTERFORCES

Quarterly Investment Strategy

14/07/2016

Q3 2016 INVESTMENT OUTLOOK

Q3 2016 INVESTMENT OUTLOOK

Investment Strategy Podcast

13/07/2016

POSITIONING FOR BREXIT: WHAT NEXT FOR THE BANKS?

Sector update - Brexit

04/07/2016

BREXIT: MAJOR CENTRAL BANKS EXPECTED TO ACT

Investment Strategy

24/06/2016

COULD MONEY FLY?

Investment Strategy Bulletin

01/06/2016

HAPPY ANNIVERSARY UAE

Corporate

09/05/2016

EMERGING MARKETS: AN UNEXPECTED PERIOD OF PEACE

Quarterly Investment Strategy

04/05/2016

INVESTMENT OUTLOOK

INVESTMENT OUTLOOK

Investment Strategy Podcast

29/04/2016

JAPAN: IN SEARCH OF A VIRTUOUS CYCLE

Quarterly Investment Strategy

28/04/2016

EUROPE: NO SIGN OF A CREDIT BINGE

Quarterly Investment Strategy

25/04/2016

THE US ECONOMY (READ: CONSUMER) STILL HAS STAMINA

Quarterly Investment Strategy

21/04/2016

THE END OF THE CREDIT CYCLE

Fixed income monthly

19/04/2016

A SWISS PERSPECTIVE ON BREXIT: PART II

Investment Strategy Bulletin

18/04/2016

MARKET OUTLOOK: LOW, SLOW AND STABLE

Quarterly Investment Strategy

15/04/2016

A SWISS PERSPECTIVE ON BREXIT

Investment Strategy Bulletin

13/04/2016

ASSET ALLOCATION: INVESTING BEYOND THE PANIC

Quarterly Investment Strategy

12/04/2016

SWISS FINTECH INNOVATION

Association

31/03/2016

UNTAPPING LATAM’S POTENTIAL

Investment strategy

23/03/2016

EN ROUTE TO NEGATIVE RATES

Investment strategy

24/02/2016

COMMITTED TO INDEPENDENT ASSET MANAGEMENT

Strategy bulletin

23/02/2016

THE ART OF MEASURING IMPACT

Investment strategy

28/01/2016

Q1 2016 INVESTMENT OUTLOOK

Q1 2016 INVESTMENT OUTLOOK

Investment Strategy Podcast

19/01/2016

QUARTERLY INVESTMENT STRATEGY: JAPAN OUTLOOK

Investment strategy

21/12/2015

QUARTERLY INVESTMENT STRATEGY: US OUTLOOK

Investment strategy

18/12/2015

HAS RUSSIA SEEN THE WORST ?

Strategy Bulletin

03/11/2015

HOW WORRIED SHOULD WE BE ABOUT BRAZIL?

Strategy Bulletin

12/10/2015

ADAPTING TO LOWER-FOR-LONGER OIL PRICES

Strategy Bulletin

06/10/2015

INVESTING FOR A "GOLDEN AGE"

Strategy Bulletin

28/09/2015

Expert view: The Fed holds its fire, again

Expert view: The Fed holds its fire, again

Investment Strategy Podcast

18/09/2015

FED IN FOCUS

Strategy Bulletin

30/07/2015

Q3 Investment Outlook from our European bank

Q3 Investment Outlook from our European bank

Investment Strategy Podcast

15/07/2015

GREECE: AFTER THE REFERENDUM

Strategy Bulletin

06/07/2015

TIME TO RE-VISIT EMERGING MARKETS?

Strategy Bulletin

03/07/2015

Expert view: What should you do with your cash holdings?

Expert view: What should you do with your cash holdings?

Investment Strategy Podcast

26/06/2015

OIL UPSIDE IS CAPPED

Strategy Bulletin

28/05/2015

Opportunities and risks in global markets

Opportunities and risks in global markets

Investment Strategy Podcast

19/05/2015

Our Q&A on Greece

Strategy Bulletin

17/02/2015

Economic outlook 2015

Strategy Bulletin

17/12/2014

LOWER OIL PRICES:GOOD NEWS, OR BAD?

Strategy Bulletin

01/12/2014

ROUGH TIMES FOR SOUTH AMERICA

Strategy Bulletin

03/11/2014

WHY COMMODITIES ARE BACK IN FOCUS

Strategy Bulletin

05/08/2014

WILL THE SNB HAVE TO FOLLOW THE ECB?

Strategy Bulletin

20/06/2014

EMERGING MARKETS: TIME TO DIFFERENTIATE

Strategy Bulletin

16/05/2014

CHINA’S DELEVERAGING STRATEGY

Strategy Bulletin

24/04/2014

ABENOMICS. THE EASY PART IS OVER

Strategy Bulletin

18/03/2014

WHAT ARE THE ECB’S OPTIONS?

Strategy Bulletin

13/02/2014

LOWER CHINESE GROWTH AND OPPORTUNITIES

Strategy Bulletin

21/01/2014