Citigroup On Lower Oil: Global Economic Growth Should Improve, Inflation Falls

Robert Buckland and a team of analysts at Citigroup commented on the falling oil price in a note to clients last week. The analysts note that a new $70 to $90 price per barrel equilibrium is likely to play out over the coming years. The price forecast assumes a “mostly supply-driven fall” in addition to near-term downside risk after OPEC's inaction last week to alter its exports to stabilize declining oil prices. As a result of declining oil prices, global economic growth will receive a boost while inflation is expected to fall. As a result, monetary policy is expected to remain “looser” for a longer than expected period. The analysts believe that the combination of a stronger economy and lower rates should support global equities and risk assets. Countries that benefit the most will be those that are large importers of oil such as Japan while big oil producers including Russia, Norway, Canada and Brazil tend to do “poorly” when oil prices are lower. The analysts conclude by stating that global energy stocks are “obvious losers,” perhaps at the expense of Retail, Transportation and selected Chemical stocks that could prove to be beneficiaries.