• Oil price: We confirm our target price for the next 12 months in the range of $60-70 per barrel. Geopolitical risks have pushed the price up above 70$ per barrel in the past weeks but the overshooting phase has been suspended by speculations of a potential policy shift by Saudi Arabia and Russia to revive production. The issue will be probably discussed in the next OPEC meeting in June.
• Inflation: The recent increase in oil price is expected to have very limited impact on core inflation as the rise in oil price is perceived as temporary. The “base effect” on headline inflation does not alter the inflation environment, which remains benign at a global level.
• Growth: On growth impact, there are winners and losers. Higher oil prices are having large redistributive effects (from sector to sector and country to country). Higher oil prices are weighing on the purchasing power of households, while businesses are seeing an erosion of their profit margins. Having said that, we don’t see risks of recession driven by the oil price creeping higher, as the economic costs are expected to be temporary.
• Investments: In this maturing phase of the cycle, which remains mildly favorable for risk-assets but with limited directional conviction, the resilience of the oil price may open opportunities for relative value exposures i.e. a preference for the energy sector in the equity space and in US HY, unless there are significant deviations from the current OPEC policy which would require a reassessment of the investment case.
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