UBS AM: Die Bedeutung höherer Ölpreise für die Märkte
Last month, the price of Brent oil reached USD 75, its highest level since 2014. Just over two years ago, the dollar cost of a barrel of oil was as low as USD 28. And just as the USD 85 drop in oil prices from 2014 to 2016 was central to the global economic and market environment then, the recent rise in oil has implications for investing today. In this Macro Monthly we examine why oil prices have been rising, what it means for the global economy, and implications for asset allocation.
As with any asset price, oil is driven by supply and demand. On the demand side, oil was impacted by a slowdown of global growth, driven in particular by China and other emerging markets, from 2014 to early 2016. On the supply side, Saudi Arabia made a strategic decision to flood the market in an attempt to regain market share—lowering the price via increased supply to make higher cost US shale oil companies sufficiently unprofitable to cease production. Finally, the 25% gain in the trade-weighted dollar over this period also weighed on the commodity. The rebound in oil over the last two years largely reflects an unwinding of these conditions. The global economy rebounded sharply over the course of 2016, supported by Chinese stimulus and extraordinarily easy monetary policy from developed market central banks. Meanwhile, domestic consider- ations led Saudi Arabia to not only reverse its own policy of oversupply, but spearhead an OPEC+Russia agreement to cut production sharply. Dollar strength has partially unwound, which has also boosted oil.
Last year, most energy analysts originally forecast oil prices to remain in the USD 40 to 60 range, anticipating that any significant rise in oil prices would be met with a sharp increase in US shale oil production. However, US production has disappointed as many energy companies have either focused on repairing balance sheets damaged by the 2014-2016 oil collapse or faced production bottlenecks including congested pipelines and input shortages. While US production is missing estimates, OPEC+Russia adher- ence to agreed supply cuts has been remarkably disciplined compared to prior agree- ments. As such, demand has outstripped supply and inventories declined (Exhibit 1). Tighter balances have left the oil market more vulnerable to supply shocks such as in Venezuela and to the possibility of a re-imposition of export sanctions on Iran, a major oil producing country. Moreover, with Saudi Arabia keen to sell a stake in its USD 2 trillion-valued national oil company Aramco, the Saudi leadership has a strong incentive to continue supporting oil prices. While US shale production is still projected to ramp up further, tighter balances and geopolitical developments have skewed risks to the oil price to the upside in the near-term.