Financial professionals largely believe that the decline in oil prices to date has been good for the US economy, but warn of a further drop that will have more negative consequences, with a majority of respondents identifying $30 per barrel as the price that would signal a global recession, according to the Convergex-sponsored Oil Impact Survey, which was conducted in January.
Respondents overwhelmingly believe that oil prices, as measured by light crude oil (West Texas Intermediate), will continue to fall in 2015, with more than two-thirds (68%) saying they do not believe prices have yet reached a bottom.
Investors expect a rebound before the end of 2015, with 43% predicting a final price per barrel between $40 and less than $60, and 42% predicting a final price between $60 and less than $80. But these figures represent a significant decline from early December, when another Convergex survey found 89% saying oil would end 2015 above $60 (the level at the time of the survey), and nearly half (47%) expecting a final price of $80 per barrel or more.
Respondents named individual energy stocks (44%) as the investment vehicle of choice once oil prices have bottomed, followed by energy sector exchange-traded funds (ETFs) (30%).
A majority of those surveyed say that current oil prices have had a positive or very positive impact on US price levels generally (53%, vs. 28% negative/very negative) and on the US economy overall (66%, vs. 22% negative/very negative). Investors were split on the effect on the US labor market, with 39% seeing a positive or very positive impact, and 36% seeing a negative or very negative impact.
But investors predict a different result should prices continue to decline, with fewer respondents predicting a positive or very positive impact on general price levels (49%) and on the US economy overall (53%) than at current oil prices. A majority of respondents (55%) see a negative or very negative impact on the US labor market if oil continues its drop, while just 32% see a positive or very positive impact.
"In just one month, financial industry professionals have dramatically lowered their expectations for oil prices in 2015," said Nicholas Colas, Convergex chief market strategist. "While investors say that the drop in oil prices has been a net positive thus far, their forecast is less sunny. We have here a clear warning of the impact if prices continue to fall – and our respondents think they will."