Recovering oil price to boost risk assets - BlackRock

By Sam Shaw

Added 11th October 2016

Russia’s promise to taking part in the OPEC-led oil price freeze may provide a boost to risk assets while holding back returns from those deemed ‘safe haven’, according to BlackRock’s Richard Turnill.

Recovering oil price to boost risk assets - BlackRock

A rising oil price – led by OPEC’s commitment to capping output that was announced last month – has seen the oil price climbing steadily since, adding 3% yesterday (10 November).

The global chief investment strategist at the world’s largest asset manager said in a recent note that the OPEC plan was seen as a strategic shift by Saudi Arabia away from a battle for market share.

He said: “We see less risk of a renewed oil price plunge and the potential for a gradual rise toward long-term equilibrium levels around $60 per barrel, where supply and demand are likely to find a better balance. A spike beyond that level is unlikely as some sidelined oil producers would then have incentives to ramp up production.”

Turnill added the oil price declines of 2015 and early 2016 had contributed to market volatility, while hurting both emerging markets and high-yielding assets.“An effort to rebalance the oil market is important because it should help support energy companies, risk appetite and reflation trades,” he said.

With Brent crude reaching a 2016 high yesterday, Ian Forrest, investment research analyst at The Share Centre, said it hinted at positive dividend action for the oil majors, namely Royal Dutch Shell and BP.

He said: “OPEC may put quotas in place when it meets next month but there is uncertainty around what level of production Iran will agree to. Given that shale oil has made the US, which is not a member of OPEC, the world’s largest oil producer, the ability of the cartel to control global prices is not as strong as it once was.

“All of this is relatively encouraging for investors in the sector, but the rise must be sustained to have any meaningful impact. Our preferred stocks remain the two major integrated groups, Royal Dutch Shell and BP, which continue to pay attractive dividends and are suitable for investors seeking a lower/medium risk approach. The rise in the oil price reduces the chances of those two companies cutting dividend payments, but it needs to remain above $60 to provide more certainty of that.”

BlackRock’s Turnill added that remaining risks included failure of various OPEC members to see through their promise, increased production by non-OPEC nations and renewed weakness in global demand.“Higher oil prices would reinforce current market trends based on reflation: rising long-term bond yields and a shift out of perceived safer assets − bond proxies and low-volatility stocks − and into cyclical assets such as emerging markets. Within energy equities, we favor quality and low-cost producers. We prefer inflation-linked bonds to treasuries.”

Kames Income Hub


Vincent McEntegart, manager of the Kames Diversified Monthly Income Fund, explains how he aims to deliver a stable and sustainable income of 5% p.a.*, paid monthly, by investing in a range of asset classes

Square Mile Research

Lazard Emerging Markets
Lazard Emerging Markets

Talking Factsheets is a video service for users...

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address



Investment Strategy




PA Channel Island 2016
PA Channel Island 2016

8th November 2016
The Royal Yacht, Jersey


17th November 2016
The Andaz

PA Emerging Markets 2016
PA Emerging Markets 2016

1st December 2016
The Mayfair, London

Sponsored Content

Investment Strategy