Oil: Prices down the slump – Nordea Markets

The recent oil price slump may carry with it plenty of interesting effects and the first of which is that weaker oil prices may rewrite the outlook for headline inflation across the world, according to analysts at Nordea Markets.

Key Quotes

“Oil prices at these levels suggest downside risks to US energy capex sometime in early 2019.”

“Our leading indicators suggests plenty of more downside for global growth, and hence the Fed’s worries may intensify.”

“Weaker oil prices also prompt questions relating to petrodollar flows. Oil producers will have fewer excess dollars to invest as a result of getting paid less for their oil exports. Back in 2014-2015 some market participants argued that the lack of such flows could represent a Quantitative Tightening of sorts. While we prefer to use that specific moniker for the shrinking of central bank balance sheets or to the sterilisation of excess liquidity, smaller petrodollar flows can’t be good news for risky assets. If oil prices weaken further, we can’t rule out questions relating to public finances as well as pressures on dollar pegs in for instance the gulf.”