FedEx shares? Yes. Venezuelan sovereign bonds? No. Back up the truck on an airline (so to speak)? Why not. Nigerian naira forwards? Maybe next time.
This week’s collapse in oil prices has blessed the ordinary investor with a target-rich environment. The nature of the collapse presages more volatility to come in crude – by not cutting production, Opec abandoned its cartel power and left it to the oil market to set prices. Winners might not be obvious, either. The price of iron ore will also be leaving 2014 far below where it entered. Then again, Rio Tinto’s mining trucks run on similar stuff to FedEx trucks and airliners. And fuel costs have room to fall further.
All an investor needs is cash, and the flexibility to put it to work. Spare a thought for Opec producer nations themselves, then. They will have fewer petrodollars to rub together if prices stay low. Citi estimates that petrodollar assets earned on oil exports rose by roughly $500bn each year during the past half-decade, with crude near $100 a barrel.
This pile has been invested to a great extent in safe assets such as Treasuries and bank deposits (the resting places, for example, of half of Saudi Arabia’s $750bn oil surplus). Demand for bonds may profoundly alter too if fewer petrodollars are sloshing around to chase them. That volatility will not just be limited to the oil market.
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