The Week In Hindsight, 24 January 2014

Both Brent and WTI Crude dropped in line with other global markets on Friday as investors digested emerging market developments. This was before recovering modestly in time for the Friday close. Prices for the oil benchmarks are still predominantly driven by global growth expectations in the west along with supply concerns from the east; this has helped to maintain a strong upward trend in prices for both types of crude over recent weeks.

Despite any near term impact upon markets that arises from concerns over the developing world, the impact of this situation upon stock prices and revenue performance over the medium term is likely to remain muted.

Outside of implications for investor confidence, a deterioration in economic conditions within emerging markets is, to a reasonable degree, a bonus for many developed nation stocks. This is as local currencies, goods and services are likely to become cheaper to purchase in time, which should support margins for those companies that source products and materials from the affected regions. For this reason it is unlikely that the western growth outlook will be adversely affected in a notable manner.

As a result, the global growth and demand side of the equation for crude oil is likely to remain sound while prices could receive additional boosts on a periodic basis due to supply side dynamics and ongoing unrest in producer countries.

Brent Crude with WTI Overlay