The decline in the price of oil in the past nine months has had a diverse effect on markets and investors looking into the commodities space.
In the 12 months to March 18 2015, the S&P GSCI Brent Crude Spot index has plunged 39.63 per cent. However, the FTSE All-Share Oil and Gas index has dropped just 9.2 per cent in the same period and the S&P 500 Oil & Gas Exploration and Production index has fallen 6.39 per cent, data from FE Analytics shows.
So while the oil price itself has had a dramatic fall, with Brent Crude currently sitting at roughly $54 a barrel, and WTI (West Texas Intermediate) Crude oil even lower at $43 a barrel, investors that have taken indirect exposure to the commodity have had a slightly better ride.
Meanwhile, the wider indices have performed strongly in the past 12 months, in spite of reasonably large exposures to the oil sector. The S&P 500 has gained 26.3 per cent in the 12 months to March 18, while the FTSE All-Share has risen 8.71 per cent.
Daniel Murray, chief economist at EFG Asset Management, notes: “The clear market delineation has been between the energy producers whose stocks and shares have suffered quite a lot in the past nine months versus the sectors that benefit from a lower oil price.
“Consumer discretionary in particular is the sector that has done relatively much better, in part because the lower oil price acts like a bit of a tax cut, so consumers have more spending power.”
Other beneficiaries of the falling price of oil include any industrial sectors that are energy intensive, while on a country basis the obvious impact is that oil importers such as India have done better, while oil exporters such as Russia have suffered.
As a whole the uplift to the global economy from the lower price of oil can roughly be calculated as a 0.1-0.2 percentage point increase in global GDP for every $10 decline in the price. Therefore, a $50 fall could equate to a boost of 0.5-1 percentage point to global GDP.
Mr Murray adds: “It is not massive but it is meaningful, and it is certainly a tailwind for the global economy through 2015 and hopefully into 2016.”
One of the drivers in the decline of the price of oil was the unusually sharp increase in supply. Mr Murray explains: “That was in part down to shale, but also down to some of the Libyan oil coming back online, so there was a sharp increase from that source. That threw all the existing demand-based models out of sync.”
Although many are now re-evaluating the supply-demand dynamics of the oil market, it seems unlikely that the price of oil will recover too rapidly, with Carmignac commodities fund manager Michael Hulme highlighting a pick-up in supply volumes from south Iraq and Kurdistan.
“But the biggest surprise that really triggered the fall in the oil price was the production spike in Libya, which no one expected because of the ongoing fighting there,” Mr Hulme explains.