Oil to correct to $40 in 6-12 months: Mobius

He expects rally in emerging markets to continue…by Allen Wan & Carol Massar/Bloomberg

Oil prices may slide to $40 a barrel in the next six to 12 months as a “correction” in commodities runs its course, Mark Mobius, managing director of Templeton Asset Management, told Bloomberg Television. “A downturn in commodity prices is probably a good thing over the long term,” said Mobius, who oversees about $30 billion in emerging market equities at Templeton. He was speaking from Hong Kong. Crude oil has plunged from its record $78.40, set on July 14, as concern eased that Atlantic Ocean storms would damage platforms in the Gulf of Mexico, and as the end of the US vacation season reduced gasoline use. While prices for oil and other raw materials will fall, the decline won’t be steep enough to “substantially” dent profits at oil companies, according to Mobius. “Even at $30 a barrel, which is what we could reasonably expect going forward, these companies are making an awful lot of money,” he said.

Mobius expects a rally in emerging markets to continue.
Following a 25% plunge from May 8 through June 13, the Morgan Stanley Capital International Emerging Market Index has climbed 3% this quarter. “The fundamentals look good,” said Mobius. The investor said he is bullish on Turkey, South Korea, Taiwan, Brazil and South Africa. China is still attractive, he said, citing a pickup in domestic consumer spending and upcoming initial public offerings in the banking industry. Meanwhile, crude oil prices were little changed, heading for a third weekly decline as US fuel inventories rose and concern waned about supply disruptions. Oil has slipped 13% in three weeks as gasoline and heating oil inventories gained and Middle East tensions eased. The Yemen government said it foiled a terrorist attack on oil and gas facilities this morning. Oil workers in Nigeria, Africa’s largest producer, ended a strike yesterday. “We’ve not had any new situation, either politically or geographically, that affects oil supply, so there is no new loss of production, and stockpiles are relatively high,” said Robert Montefusco, a broker at Sucden (UK) Ltd in London.
“The general tone is bearish.”

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