Positive impact of lower oil price not yet seen, Credit Suisse says

Oil prices will soon begin to stabilise, which is critical to equities and cyclical stocks in particular, analysts at Credit Suisse said on Wednesday.

The positive impact from the drop in energy prices will also become more apparent.

The problem lies in the fact that commodity-related investment makes up 30% of total capital expenditures globally.

Over the past 12 months, oil capex has dropped by 13% and that in mining by 31%.

The combined fall in US and global commodity capex and operating expenditures knocked at least 0.8 percentage points off the rate of growth of US gross domestic product in the first half of 2015.

Ultimately the lower price of oil should boost global GDP

The impact on the world economy as a whole over the last twelve months was a full percentage point.

“As in 1985/86, consumers reacted by saving some of the windfall from lower prices. However, ultimately the lower price of crude should boost global GDP growth by about 0.5% to 1%, even adjusting for the capex and savings headwinds,” the broker said in a research report sent to clients.

Saudi Arabia got what it wanted?

Furthermore, OPEC’s spare capacity has now been whittled down to 1.5m barrels per day, at the current price Saudi Arabia has succeeded in stabilising its own market share and the Kingdom is running a budget deficit of approximately 20% of GDP.

As regards the investment implications of all of the above, the strategy team led by Andrew Garthwaite has reduced its underweight position in ‘integrated oil companies’ and downgraded the weighting of the airlines sector in its model portfolio to ‘benchmark’ from ‘overweight’.

If oil does stabilise then ‘select cyclicality’ should do well, the research team said, singling out employment agencies, Italian banks and Fiat.