In this scenario, "all the Middle East’s largest energy producers are likely to build excess FX reserves increasing the risk of renewed dollar diversification out of the region," Mohi-uddin wrote in an April 21 note. If that happens, the strategist reckons the dollar will struggle to appreciate within its current 1.20-1.25 range against the euro.
To be sure, America’s shale revolution, the propensity of energy producers to lavish more of their savings at home, and the end of oil prices at their dizzying highs mean the petrodollar supercycle is less powerful relative to yesteryear. But the prospect of Saudi Arabia’s foreign assets rising this year underscores the tentative return of these sovereign drivers of international capital flows.
The tailwind from oil prices will be more pronounced on stock prices -- as oil companies buy back shares -- while constituting a headwind for fixed-income, according to JPMorgan, even as a glut of global savings has traditionally boosted U.S. bonds.
Lower oil prices effectively shifted money from producers to consumers, and companies with fattened profit margins deposited extra cash into the banking system -- most of which found its way into bonds, the analysts argue.
"The rise in oil prices should create a positive flow in equity markets this year," they said. "Where the rise in oil prices poses more risk is in bond markets as the squeeze in oil consumers is reversing their previous saving impulse of 2015/2016, creating a bearish flow for bond markets this year."
This article was provided by Bloomberg News.