EMTA Special Seminar: Geopolitics of Oil 2015

Registration fee for EMTA Members: US$75 / US$695 for non-members. 

We regret that this event is not open to the media. 

January EMTA Forum Explores Oil Pricing Effects on EM Assets

In response to the dramatic decline in oil pricing, EMTA held a seminar focusing on the commodity and the likely geopolitics surrounding it in 2015.  The event was held on Thursday, January 8, 2015 and was hosted by Bank of America Merrill Lynch.  200 EM professionals attended.

Well-known oil expert Dr. Gary Ross (Pira Energy Group) delivered keynote remarks.  Among the topics covered in Dr. Ross’ presentation were the events that led to the collapse in oil pricing, his prognosis for 2015 price levels, the factors that influenced Riyadh’s decision not to cut back production, and geopolitical events that could cause further price erosion.

Following Ross’ keynote, Alberto Ades (Bank of America Merrill Lynch) moderated a discussion focusing on how oil price movements were affecting EM portfolios.  Tim Ash (Standard Bank) sketched his view of how the global economy would play out in 2015 – a continuing and gradual US recovery, with a cautious Fed avoiding actions that would kill off the economic recovery, while weakness in Europe persisted.  Low oil pricing would help oil importers in both the DM and EM worlds, with EM countries generally facing a challenging, and piecemeal, recovery.

OppenheimerFunds’ Sara Zervos regarded recent decisions by oil producers as a “pseudo-Prisoner’s Dilemma – no one wants to cut unless they know everyone else is cutting,” she stated.  Venezuela was undoubtedly the country which would be most hurt by weak oil prices, while the savings in importing countries would have large economic benefits.  “The bulk of EM countries are winners from cheap oil,” she summarized.

Patrick Esteruelas (EMSO) focused on the relationship between lower oil price and MENA politics.  Esteruelas argued that the US Congress would maintain a hawkish stance against Iran, and thus was pessimistic about a nuclear deal (which could potentially increase oil supply).  He feared increasing political violence in 2015.

Russia had not taken advantage of higher oil pricing in recent years to enact reforms, Ash lamented, venturing that sustained lower oil revenues might finally force policymakers in Moscow to act.  While not anticipating any imminent moves, and believing that President Putin would likely try to ride out lower oil prices, “heads will have to roll, and Prime Minister Medvedev is probably out.”  Ash added that he maintained an underweight recommendation on Ukraine, because of Moscow’s seeming emphasis on retaining Ukraine in its sphere of influence.

“If you were negative on Venezuela at $100 per barrel, then you have to be negative on Venezuela at $50 a barrel,” rationalized UBS’ Rafael De La Fuente.  The country would remain in serious trouble if oil stabilized at such levels, although a muddle-through scenario remained possible if prices rebounded.  The Maduro administration appears to remain convinced that defaulting would be a net negative for the country, he added.  Furthermore, he stressed that much of Venezuela’s international political support was a result of sweetheart oil arrangements, and the loyalty of Petrocaribe countries was more questionable when oil was at $50/barrel.  Esteruelas added that no other EM country was at risk of defaulting because of lower oil prices, and he didn’t anticipate contagion in such a scenario.