NN - Spotlight: Crude oil and Emerging Market Corporates: Cloudy with a chance of sunshine

Volatility in oil prices has had a major impact on the corporate sector in emerging markets. From the beginning of 2011 through the third quarter of 2014, Brent crude prices fluctuated between USD 90 and USD 120 per barrel with an average price of USD 110 per barrel. During that period, this benign price environment resulted in a 3.74% Total Return outperformance for the Oil & Gas Corporate Index relative to the JP Morgan CEMBI Broad index – Figure 1: US oil production vs. Brent oil price which is the main benchmark for EM corporate debt. Then the weather changed. Crude prices began a swift downturn late in 2014, not bottoming until January 2016 at under USD 28 per barrel. While prices have recovered and are currently flirting with the USD 50 mark, companies have had to adjust their cost structures and capital needs to this lower price environment. In this Spotlight, we examine crude oil market dynamics, their effect on the oil & gas sector and our outlook going forward.