A spike in oil prices can impact markets around the world. A number of teams across Barclays have to be quick to respond – tracking what these changes mean and advising clients on how this might impact asset prices.
Find out how we reacted when oil prices rose here.
For Cagdas, a spike in oil prices meant assessing the impact of its sudden rise on the economic outlook in developed markets.
Cagdas first consulted with our Commodities Research colleagues to assess whether the spike was likely to be a temporary event, or was going to have a more lasting impact.
It was important to get to grips with its impact on the US economy. As its economy is much more dependent on consumer spending, the impact of disposable income on economic growth is greater in the US.
Selina was working at the European Equity Sales desk. She called all her institutional and hedge fund investor clients to make sure they knew about the rise in oil prices, and to give a broad overview of which stocks might be affected.
The next day, our airlines analysis experts published a research note recommending investors sell shares in airlines. Selina set up and attended a number of meetings, so that her clients could meet with our oils and airlines analysts.
As the spike took effect, Selina continued to keep her portfolio manager clients abreast of further news on a variety of companies who might be affected - from oil companies and airlines to chemical companies. She also kept them informed about other external factors that might be relevant to their shares.
On the European Equity Sales Trading desk, Rachel called her clients – traders who work at big investors – to walk them through what had happened to the oil price.
She fielded a number of buy orders from pension and hedge funds eager to buy oil company shares. This is because they were set to benefit from the increase in selling prices of oil.
She stayed in touch with her clients over the course of the day and the following weeks, with news of any major buying or selling activity in the oil sector. When her clients wanted to buy or sell more shares, she liaised with the Oil Trading team to help get her clients the best prices.
Tom was trading European oil company shares with the Equity Trading team, and was already used to determining the trading price of leading multinational oil companies. On a daily, hourly and sometimes minute-by-minute basis, he would keep abreast of current events that impacted prices, as well as tracking supply and demand of the shares from buyers and seller.
On the morning after the spike, a significant volume of shares traded. One of Tom’s responsibilities was to make sure that the price reflected buying and selling patterns.
Market makers will often help clients buy or sell shares. On this occasion, oil company shares responded to the increase in oil prices by rallying 5%.
Working as the Equity Research Analyst covering airline stocks for a number of leading global airlines, Oliver had to analyse how the rise in oil prices affected these companies, so he could communicate that to our institutional investor clients. Oil price increases are never good news for airline companies, whose main cost is jet fuel.
Oliver spoke to the management teams of each of the airlines under his stock coverage, to find out what hedging policies they had in place. Hedging helps protect airlines from increasing jet fuel prices.
After assessing their different policies, Oliver ran the numbers through his model to calculate if he needed to downgrade his expectations of these airlines’ future profits. As a result, he cut one of the airline’s shares to a sell recommendation in a published research note the next day.
Sabrina in FX Sales spoke to a wide variety of institutional and hedge fund clients. She explained the changes in the oil price and they discussed trades in response to the new information.
Sabrina discussed the merits of buying Russian roubles, Canadian dollars and Japanese yen with investors, as she knew that historically there’s been a good correlation between these currencies and the oil price.
On the trading desk, clients can trade oil futures or a basket of stocks related to oil, such as oil producers, refiners and exploratory companies. Knowing the market and how it was changing, Matt could quote prices and help them trade in the most appropriate way - exposing them to risks as necessary and maximising investment.
Working closely with the Research Analysis and Sales teams, Alan sought to understand the impact on each of his client’s stocks – all related to the price of crude oil (including oil and gas companies and airlines). He drew on his knowledge of trading volumes during such times, and used extra caution when executing trades.
Working in FX Structuring, Wenjie understood the importance of consulting our existing research on the potential evolution of markets during oil price changes. As such, he knew that each client’s hedging strategy needed to be revisited. So he consulted with colleagues in Commodities to design appropriate products for clients – helping them achieve their budget rates and hedge ratios.
Damla looked at inflation projections, knowing oil prices have a direct impact on rates generally. The changes, along with the geopolitical stresses that had in part caused the spike, were meaning that many clients were keen to hedge themselves on inflationary pressures or the back of bond holdings. Contacting every client regularly, Damla explained the risk associated with oil prices on rates and helped them hedge themselves within the constraints of the market.
In EM Credit Sales, Ali tracked countries in emerging markets as the oil spike happened. Working closely with the Research team and his clients, he made sure any credit movement was flagged up and dealt with.
He also drew on his internal network to keep on top of the fast-moving situation. He arranged a conference call with a Macroeconomist and Commodities Analyst, to discuss possible ways forward for his clients. After advising his clients, they agreed to add exposure via newly developed bond purchasing strategies.
In Equity Research, Patrick realized that the oil price spike would have significant ramifications for a number of economies around the world.
Applying historical data analysis to the current situation, he wrote a research note explaining how the move might affect the US, Europe and China. His focus was on his expectations of GDP growth and the balance of payments in each country that he thought would be affected.
He called the senior decision-makers at all of Barclays major institutional and hedge fund clients. Then he spoke to the Equity, Credit and FX Sales teams, to talk through his ideas and make sure that these teams understood the implications.
Later that morning Patrick appeared on CNBC and was also interviewed by other relevant media, who called on his expertise to explain what was happening.
In Equity Research, Vicki realized that the oil price spike would have considerable ramifications for the input costs of a number of companies that she covered, where fuel is one of their biggest costs.
Vicki called the management teams of those companies, to discuss the sensitivity of higher fuel prices on the companies’ future profits.
As a result of her analysis, Vicki published a research note outlining her views on the implications for each company’s stock price.
After publishing her research, Vicki contacted all her institutional clients, to discuss this analysis, what impact this might have on her clients’ investments, and to identify solutions to help mitigate this.