MANILA, Philippines (UPDATE) - Which country will benefit the most if oil falls to $40 a barrel in 2015? According to a report by Oxford Economics, it's the Philippines.
In a report "Oil-ipedia" released in December, Oxford Economics said the Philippine economy will grow by an average of 7.6 percent over the next two years if oil dropped to $40 per barrel.
"As prices get lower, the prize to the fastest growing major economy goes to… the Philippines, whose GDP growth would pick up to 7.6% on average over the next two years, were oil prices to slump as far as $40 per barrel," Oxford Economics said.
The report presented the impact of oil price declines on key macro and financial variables for 45 of the largest economies around the world.
The study did not explicitly say why the Philippines is expected to get a big boost from the drop in oil prices.
However, Oxford Economics noted, "A decline in the price of oil reduces the cost of living and of doing business. It results in a lower rate of inflation, boosting real incomes, corporate profits and equity prices. This supports household expenditure, and thus overall aggregate demand in the economy. Central banks typically reduce policy rates, easing credit conditions."
The Philippine economy rose by 5.3 percent in the third quarter of 2014 from a year earlier, affected by a drop in public spending a farm output. This was the slowest growth since the fourth quarter of 2011.
The Oxford Economics study, which was released in December, simulated a $20 per barrel oil price decline relative to the November baseline. Oxford Economics said this implies Brent crude dropping to an average of $64 in 2015, before going back to $86 in 2019.
In this scenario, Oxford Economics said the world GDP increases by a modest 0.1 percent in 2015, and 0.4 percent above the baseline in 2017.
"The increase in oil prices is essentially a redistribution of income between consumers and producers, so the positive overall impact reflects the greater sensitivity of expenditures of oil consumers react by more than those of producers," it noted.
Among advanced economies, Hong Kong would be the biggest winner with its average GDP being 0.6 percent higher.
"At the other end is Norway with GDP being 0.3 percent lower. In around of all economies’, GDP is in the range 0.2-0.4 percent higher than in the baseline," Oxford Economics said.
Meanwhile, Oxford Economics said Russia would be the biggest losers if oil plunges to $40.
"At that price, Russia is at the bottom with growth slumping to -2.5% on average in the next two years, and that does not even incorporate fully Russia's other issues," Oxford Economics said.
Oil halts 4-day drop
Meanwhile, Brent crude extended gains on Thursday to hold above $51 a barrel, after an unexpected fall in U.S. crude stocks snapped a 4-session decline the previous day.
Data showing the U.S. economy remained resilient amid slowing global growth helped bolster oil, which was also supported by Chinese crude imports likely hitting a record high in December.
Brent crude LCOc1 marked an intraday high of $51.91 a barrel and was at $51.30 by 0543 GMT, up 15 cents. U.S. crude CLc1 had risen 25 cents to $48.90 after touching a peak of $49.65.
But pressure on prices that have plunged more than half since June highs remains strong, with key producers such as OPEC and Russia showing no signs of cutting output despite a supply glut and as major economies in Europe and Asia struggle with slowing growth.
"Sentiment towards the oil market remains negative but the lack of downward momentum in overnight trading has left bears a little nonplussed," said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
"We're looking for impetus to move down but the data released in the last 24 hours has been supportive of higher prices, not lower prices."
Economists have sharply raised estimates for U.S. fourth-quarter growth after the country's trade deficit shrunk in November on lower oil import costs.
U.S. crude inventories fell 3.1 million barrels compared with analyst expectations for an increase of 880,000 barrels, data from the Energy Information Administration showed on Wednesday.
The data also showed that gasoline and distillate fuel stocks soared by the most ever last week, rising more than 19 million barrels as a global crude oil surplus begins to translate into swelling fuel inventories.
Brent's premium to U.S. crude narrowed further to below $2.50, the lowest since mid-October.
Technical analysis of oil price charts showed that the contracts have been oversold, McCarthy said, but the breach of several price resistance levels in past sessions has made it difficult for traders to predict where prices may find their next level of support.
Phillips Futures analyst Daniel Ang wrote in a daily note that charts indicated West Texas Intermediate (WTI) and Brent were unlikely to rise above $50 and $53 respectively. - With Reuters