The impact of oil prices trading at multi-year lows is a debate that refuses to go away. Cheap oil might be good for consumers, but its impact on energy-related investments is still a point of discussion. Francisco Blanch of Bank of America Corp (NYSE:BAC) believes the plunge could result in one of the largest wealth transfer in History.
Oil Demand Increase
In a research note to investors, Blanch argues that sustained low prices could push back $3 trillion worth of investments from oil producers to consumers. The biggest beneficiary of a sustained plunge should be consumers. The Bank of America Team already notes that demand for oil continues to increase as the plunge persists.
The team expects demand to grow by 1.5 million barrels a day should prices hold below the $40 a barrel mark. Demand, on the other hand, could grow by as much as 1.7 million barrels should prices holds at $20 a barrel.
Auto industry Bullish Sentiments
The automobile industry stands to generate more returns as oil prices trade at multi-year lows. Emerging markets according to Bank of America Corp (NYSE:BAC) should register a huge upside potential on cars penetration levels. China, for example, is fueling growth in demand for SUV’s thanks to the low oil prices.
Car sales are not only picking in emerging markets. Auto sales in the US are also up. Vehicle miles travelled in the US ticked higher last year as car owners took advantage of cheaper gasoline to travel a lot.
Financial Sector Woes
A plunge in oil prices is however taking its toll on the banking sector. Three of the biggest US banks have already raised concerns about the rising costs in bad energy loans attributed to low oil prices. Citigroup Inc (NYSE:C) has already recorded a 32% rise in non-performing corporate loans. JPMorgan Chase & Co. (NYSE:JPM), on the other hand, says it is closely monitoring happenings in the sector as it looks to shield itself from spillover effects.
Bank of America Corp (NYSE:BAC) research note to investors all but affirm the fact that a sustained plunge in oil prices should result in one of the largest transfers of wealth in human history
Anthony Young
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