Oil price: We confirm our target price for the next 12 months in the range of $60-70 per barrel. Geopolitical risks have pushed the price up above 70$ per barrel in the past weeks.Inflation:
The recent increase in oil price is expected to have very limited impact on core inflation as the rise in oil price is perceived as temporary.
Growth: On growth impact, there are winners and losers.
Investments: In this maturing phase of the cycle, which remains mildly favorable for risk-assets but with limited directional conviction, the resilience of the oil price may open opportunities for relative value exposures i.e. a preference for the energy sector in the equity space and in US HY, unless there are significant deviations from the current OPEC policy which would require a reassessment of the investment case.
The overshooting phase of oil price above 70 USD per barrel driven by geopolitical risks has been suspended by speculations of a potential policy shift by Saudi Arabia and Russia. The two countries announced – in a move not coordinated with OPEC partners- a possible increase of their output. The issue will be probably discussed in the next OPEC meeting in June, so far we confirm our target price for the next 12 months in the range $60-70 per barrel.
OPEC has mainly been responsible for recent swings in supply. OPEC increased production to discourage US shale oil producers during the period when the economic environment was fragile. We would note, however, that the cartel cut production during the 2017 global economic recovery, with April of that year showing the lowest production level in three years.
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