Will Falling Oil Prices Sink Retirement Portfolios?
Low energy prices are important to the success of U.S. businesses, so it’s no surprise that most financial pros said they believe the drop in crude oil prices has helped the U.S. economy.
On the other hand, if oil prices fall as low as $30 a barrel, many of the same professionals said they worry a global recession could follow.
That, in turn, would likely hurt the portfolios of individual investors as well as the investments of retirement funds, many of which include energy stocks or funds.
For instance, according to a 2011 Sonecon report, oil and natural gas stocks were on average 4.6% of state pension fund assets, providing 15.7% of returns. Also, the American Petroleum Institute reported last year that private and public pension and retirement plans hold 46.8% of the shares in U.S. natural gas and oil companies.
Retirees and those managing pension and other retirement plans might be interested to learn that some 68% of pros questioned in the Convergex “Oil Impact Survey” said they believe oil prices will continue to fall.
Forty-three percent expect the price for a barrel to end up this year at between $40 and $60, while 42% predict a price between $60 and $80. Compare that to last month’s survey when 89% said the final price for a barrel of oil would be above $60. That December survey also revealed that 47% of the pros predicted that the final price would be at least $80 a barrel.
As of earlier this month, the price for a barrel of WTI crude oil was $46.06. Compare that to $108 per barrel last June.
“In just one month, financial industry professionals have dramatically lowered their expectations for oil prices in 2015,” Nicholas Colas, Convergex chief market strategist, said in a statement. “While investors say that the drop in oil prices has been a net positive thus far, (this) forecast is less sunny. We have here a clear warning of the impact if prices continue to fall – and our respondents think they will.”
For now, 66% of the respondents say falling oil prices have so far had a positive or very positive impact on the U.S. economy, but 55% predict a negative or very negative impact on the U.S. labor market if oil prices continue to fall.
The survey was taken between Jan. 13 and Jan. 15. More than 300 respondents participated including asset managers, bankers, broker-dealers and hedge fund managers.
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