Friday Highlight  

Beware oil price volatility

We will be keeping a close eye on those markets which are most vulnerable to a higher oil price if it remains elevated. 

As with any commodity, supply and demand factors are also very important, and it was fears over supply disruption that led to the spike.

However, Saudi Arabia has significant capacity, and the country’s willingness to maintain supply should not be underestimated.

The US also affirmed its commitment to the supply side, with President Donald Trump’s first response to the attack stressing willingness to use the Strategic Petroleum Reserve “to keep markets well supplied.”

The demand side of the equation is a key factor as well. Weaker global growth could very well result in a reduction in demand for petroleum products, and minimize the risk of oil prices remaining high.

No party gains from an escalation in tensions, but there is always the potential for the political situation to deteriorate.

While the possibility for short-term spikes is never absent, investors should avoid fixating too much on one day moves.

It is more important to build resilient portfolios that can withstand the pressures of a price at much higher or much lower levels for a sustained period, instead of trying to predict intraday volatility.

Ayesha Akbar is a portfolio manager, multi-asset, at Fidelity International