Crude effect: Cheaper oil to fuel emerging markets rally

Will declining fuel prices trigger a rally in the emerging markets? Yes, say a few experts. Oil prices have been softening in the past few weeks due to over supply from Opec countries, North America and Brazil.

While the WTI price has declined 6 per cent since the beginning of this year to $94.99, Brent has fallen 3 per cent to $108.86.

Morgan Stanley’s commodities team believes that headwinds from expensive crude are likely to weaken through 2015, and four out of the five most vulnerable economies in terms of funding – India, Indonesia, Turkey and South Africa – will see their current account deficit improve, if oil prices were to fall.

They expect Brent prices to slide to $103 per barrel in 2014, and bottom out at $98 per barrel in 2015. Their field-level analysis forecasts large potential global supply expansion, given the resolution of supply outages in Opec and the ongoing production momentum in North America and Brazil.

“Supply-side downside risk in oil price could fuel a rally in emerging markets in 2014,” Morgan Stanley said in a report.