The drop in oil prices that began last week will culminate in a steady decline that could lop off up to $30 from current highs, easing inflation and boosting global growth.
Stephen Roach, chief economist at Morgan Stanley told Emerging Markets he believes oil prices will drop to “somewhere in the $40 to $50 range” by next year.
“We’ve had an overshoot. Energy prices will not stay this high for much longer, and I’m certainly not of the view that oil prices are moving to even higher highs,” he said. “We’re near the peak.”
Oil and commodity markets gave way to another sharp sell-off at the end of trading on Friday, with oil, copper and gold prices all falling sharply, resulting in large declines for the week.
The US benchmark oil price fell more than $1 to $68.35 a barrel and has now fallen 9% from its record high, reached more than three weeks ago.
Such a broad decline suggested selling from the commodity index funds, which have gained popularity among retail, pension funds, endowments and mutual funds.
“Some [commodities] have obviously gone beyond where they should be in strictly economic terms,” said Mark Mobius, who runs Templeton Investments’ emerging markets portfolio. “At prices where they are now, a number of questionable mines and reserves will come into play” increasing supply and depressing prices.
Mobius, who uses $40 a barrel when making his investment decisions, told Emerging Markets lower fuel costs could spark a mini-consumer boom in the US, which would have a positive impact across the globe.
Others were less convinced. A senior executive at a global investment bank told Emerging Markets over the weekend: “I don’t think anyone really knows” where oil prices are headed, while noting that sharp declines in oil prices are often the result of slumping growth.
EBRD’s chief economist Eric Berglof told Emerging Markets that oil prices have had a negligible impact in the economies of central and eastern Europe. “Growth is pretty robust in the face of high oil prices,” he said.
Russia is one country whose economic and political fortunes have substantially benefited from the oil boom. But Roach thinks Russia’s stranglehold over Europe and the CIS will decline in tandem with oil prices. “High oil prices govern Russia’s influence in the global sphere. This is to some extent a cyclical manifestation of Russia’s global role rather than a sustained change.”