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Oil may have clocked some stunning moves this week, but the systemic implications do not look so dire, according to JPMorgan Chase & Co.
Moves across other asset classes look “tame” by the standards of typical recessions, despite front-month West Texas Intermediate futures falling at one point this week to minus $37 a barrel — an unprecedented development, strategist John Normand wrote in a note Wednesday.
“This week’s collapse isn’t so alarming systemically,” Normand wrote. “How much should $20/barrel Brent or flirtations with sub-zero prices concern global investors? The short answer in our view is: a lot less than it used to.”
The reduced weight the energy sector has in the S&P 500 Index, asset-purchase programs currently under way by global central banks to dampen volatility in financial markets and physical production adjustments in the oil industry itself are some of the reasons that should give comfort to worried investors, according to Normand.
While the short-term risk for the oil price is to the downside, it would be overly bearish to expect prices to remain depressed well into the summer, he said. The oil price trend could pressure some assets from developing nations, but is unlikely to cause significant contagion elsewhere, he said.
“That path won’t make investors comfortable with several parts of the emerging-market complex given the implications for fiscal and balance of payments positions,” Normand wrote. “But the trajectory should be good enough to avoid systemic stress as long as central bank backstops are in place.”
