CEIC News@lert: CEIC Thematic Analysis: Lower Oil Prices and the Implications

CEIC News@lert: Global Database - 15 May, 2015 CEIC is pleased to announce a series of analytics focusing on the lower oil prices and its implications for economies around the world. The majority of our upcoming News@lerts, Chart@lerts, DataTalks and MacroWatch bulletins will discuss various facets of the low oil price environment and its repercussions for various aspects of the global economy. OVERVIEW The West Texas Intermediate Crude (WTI) spot price fell from its peak of just over USD107/barrel during mid-June 2014 to below the USD50/barrel mark during early January 2015, while the price of Brent Crude saw a similar decline from its peak of USD115/barrel to below the USD50/barrel mark over the same period. Oil prices have rebounded since late January 2015 but they remain substantially lower than the USD80-120/barrel band of fluctuation during 2011-2013. Although prices have been fluctuating around USD40-USD70/barrel since 2015, prices of both WTI and Brent only narrowly avoided falling below USD40/barrel seen during early 2009 when the global financial crisis struck. OIL PRICES: WINNERS AND LOSERS At a macro-level, the winners and losers from the cheaper oil environment largely depend on whether a country is a net consumer or producer of oil. Net producers, or at least net oil exporters (such as Russia and Nigeria), are likely to lose out from the retreat in oil prices, particularly countries with undiversified economies. On a regional basis, as the largest net producers and net exporters, the Middle East appears to be the largest loser from the decline in oil prices, while the Asia Pacific region is expected to be the largest beneficiary. However, after taking national differences into consideration, the picture may differ significantly. The relative economic size is a consideration, especially for those countries without substantially diversified economic bases. Smaller oil producing countries may well feel the full brunt of lower oil prices. Lower oil prices have exacerbated Venezuela’s economic woes; it is expected to straddle the line between low growth and downright recession due to its heavy reliance on oil exports. Larger oil producing economies may not necessarily be spared; Brazil and Russia, both of which are major oil producers, may likewise see similar pressures from falling oil prices, and both of these countries have been affected by other problems which have placed further strains on their energy sector. Notwithstanding their regional positions as net producers, some countries in the Middle East may be able to withstand the impact given their inherently lower operating costs associated with oil extraction (relative to their American counterparts), although unrest in the region must be considered. On the flip side, despite being net consumers, not all countries in the Asia Pacific (for example) would benefit equally given their diverse nature. Malaysia, for one, is a net oil producer, and potentially faces reduced oil revenues and royalties to the government. The beneficiaries and victims of lower crude oil prices may also depend on the economic sectors involved. Consumers (both households and businesses) may see lower costs, although the gains may be more muted in countries already experiencing substantial oil subsidies. Indeed, retail fuel prices have remained stagnant or have even risen marginally, despite lower crude oil prices in many developing economies (such as Brazil, Russia and India), as their governments have used the opportunity to phase out subsidies. For central banks, lower oil prices help to ease inflationary pressure, hence allowing for looser monetary policy in an environment of low growth, although this is somewhat counter-balanced by the threat of deflation encouraging stronger monetary stimulus than would be otherwise the case. However, in many instances, the impact of lower oil prices may be ambiguous. Notwithstanding the country’s position as a net consumer or producer, the policies and industrial structure can help moderate or amplify the benefits or costs of cheaper oil. For example, although the US is effectively a net consumer of oil, its burgeoning shale oil industries (which is, arguably, a major factor for the decline in oil prices), may put pressure on margins, especially given the relatively higher cost of shale oil extraction. Some of the higher cost shale oil producers may well be a major casualty of sustained lower oil prices, despite ostensibly being the cause of the price fall in the first place. OUR COVERAGE CEIC’s coverage on the energy sector includes a broad range of datasets, both industry specific and on other related macroeconomics. Country-specific statistics on production and consumption are largely obtained from official sources, including the respective ministries in charge of the petroleum sector. These statistics may be supplemented with information from the relevant oil industry associations, be it national, regional or international, and may be found under the Production statistics of the country database in the CDM, or the Energy statistics of the country database. Additionally, users may find more statistics on energy trade in the Foreign Trade sector. Premium Databases, particularly, may have dedicated sections on petroleum under the Energy Statistics. Industry-level datasets may also be available in the sectors specified above; additional sector-level data are located in the Sector Database, particularly the Oil and Gas Sector. Datasets on major players in the oil and gas sector include company-specific information, providing insights into the financial position and performance, and other operational statistics including reserves and exploration. CEIC also provides related energy statistics on an aggregated basis in the World Trend Database, with specific information on the Commodity Market (especially with regards to prices). Similar datasets may also be found in the Daily database under Commodity Prices and Futures. By Ian Lim Fangziaw - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
15th May 2015 CEIC News@lert: CEIC Thematic Analysis: Lower Oil Prices and the Implications