The GDP of the US and Eurozone increases by roughly 0.1 percentage points for every $10 per barrel that oil prices permanently decrease, according to Bettina Müller, chief European economist at Deutsche Asset Management.
The US may have a slightly bigger increase in GDP because capital expenditure by energy companies has already halved in 2015, to about 5% of the US total, she added. That limits the negative impact of low oil on GDP going forward.
Cheap oil translates into households saving on gas and heating bills, which increases disposable income, said Stefan Kreuzkamp, chief investment officer. Companies also benefit from lower energy costs.
Kreuzkamp said the speed of the oil price decline and the strong volatility have contributed to the negative market sentiment.
“The changing structure of the oil market and uncertainty about what this means will continue to have market implications.
“Oil can no longer be seen as a `known problem’ that can be assessed in terms of known fundamentals.”
The firm expects the average cost for oil in 2016 to be $40 per barrel.
Risk scenarios
Although Kreuzkamp has made slight downward revisions of his 2016 forecasts for major developed market equity indices, he remains positive on global equity markets despite the poor start to 2016.
Global economic growth is forecast at 3.4%, though that has been revised downward from 3.5%.
The firm labelled as “unlikely” several risk scenarios: oil remaining very cheap ($15 per barrel) for long; a US economic recession; a hard landing in China.
However, there is “moderate” risk of an emerging-market crisis starting in South America and then spreading around the world. Defaults of highly indebted corporate borrowers from emerging markets could spike, with the aggravating factor of political instability in Venezuela, Russia and Nigeria.
“We caution that it is still too early to invest in oil-related equities. But this, in a sense, is the easy part. What is more difficult is to assess the timing to re-enter or to build up positions,” Kreuzkamp said.
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Oil volatility rises as the price declines
