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Oil prices under control
Tension in the Middle East because of Libya is driving oil prices higher, but this would not have a serious impact on the global economy unless oil went beyond about US$145-$155 per barrel, Credit Suisse strategists said on Tuesday.
In a keynote panel at Credit Suisse’s 14th annual Asian Investment Conference, Jonathan Wilmot, Chief Global Strategist, Investment Banking, for Credit Suisse said the situation in Libya was “difficult and messy”.
“But this seems to me to have the potential to transform the way the region is governed,” he added. In the short-term, there was an obvious risk premium to oil prices, partly because of uncertainty about further supply disruptions.
But Mr. Wilmot said supply shocks were unlikely. “I really do not believe that there is a high probability of massive disruption to oil supply from the major gulf states and, in particular, Saudi Arabia in the short run –that is the single most important conclusion,” he said.
He also noted that as long as the violence did not spread beyond Libya, the oil supply situation should remain under control.
“My inclination is not to downplay the significance of all this to the region in the long run and all the uncertainties that it brings with it, but as things stand I do not expect … oil prices to go much above US$110 or US$115 or even US$120 a barrel,” he said. “If that doesn’t happen [this is] not going to derail the global economy.”
Overall, Mr. Wilmot said he believed investment strategies should be focused on the factors driving growth and recovery for the world economy.
“In my experience the best investments are always the ones that make you slightly ill to contemplate,” he said, adding that some opportunities now included those related to Japan and US housing.
Also discussing oil prices, William Porter, Head of European Credit Strategy for Credit Suisse, said he was slightly more cautious than other speakers, and that he felt prices beyond current levels could cause tension. Dated Brent Spot oil was trading at US$114.41 per barrel today.
Meanwhile, Andrew Garthwaite, Global Equity Strategist, Investment Banking, for Credit Suisse said that: “On balance, unless oil gets to US$140 to US$155 range, I think you can easily live with it.”
Turning to Japan, and the economic impact of the recent earthquake and tsunami, Mr. Garthwaite said he believed Japan was resilient and that GDP growth would be supported by public works to rebuild following the devastation.
“If a house falls it doesn’t hit GDP, if a house is rebuilt then that boosts GDP,” he said.