CEIC Thematic Analysis: Cheap Oil as a Symptom of Weak Demand

CEIC News@lert: Global Database - June 22, 2015 Over the past month, CEIC has released several articles discussing the decline of the oil price and its impact on various economies around the world. These articles are located in the section below. As one of the major energy commodities – and indeed, one of the key global commodities – the ups and downs of the oil markets have been closely monitored as a key economic indicator. In this concluding News@lert, CEIC is releasing a Chart@lert and a list of oil related datasets that analysts may find of interest in evaluating the oil markets. We hope that our thematic analysis can help clients unearth understated but nonetheless interesting datasets within our CEIC Data Manager. PAST THEMATIC EXPANSION During the previous weeks, we have produced several articles on the oil sector, its related sectors and its implications to various macroeconomic variables. The articles produced for this thematic analysis are as follow:

Chart@lert: Low oil price environment and its implication for various economies around the world

Oil Price’s Rollercoaster Ride The decline in oil prices from mid-2014 (to the present USD45-USD65/barrel band during 2015) coincides with the similar decline in commodity prices more generally. Uncertainties in the Middle East and in Ukraine were cancelled out and effectively overturned by higher shale oil production (in North America) and overall weaknesses in global demand. Demand weaknesses were mirrored by the decline in coincidental commodity indices. The Organisation of Petroleum Exporting Countries’ (OPEC) refusal to lower oil production to support prices reinforced the trend. Traditional economics points to both demand and supply factors as a cause for the present decline in oil prices. Indeed, it was the confluence of supply factors (such as the shale oil boom in the United States) and demand factors (arising from a weak global economy) that has kept prices down. Demand and Supply Factors Influencing Oil Prices Weak Global Growth US Oil Boom Understanding Low Oil Prices Low oil prices may arguably be part and parcel of the economic cycle. The traditional “economic clock” suggests that low oil prices were a logical progression of the prevailing economic trends. While the idea of the economy moving in cycles appears to be somewhat simplistic (empirically, some scenarios in the “clock” may be delayed, coincident to another scenario or even reversed), it provides analysts with a general guide as to what to expect based on the current economic environment. Slower growth in the equity markets suggests weaker demand, in turn, serving as a harbinger of lower oil prices as demand wanes. The decline in oil prices was far from isolated. Similar declines in demand were observed for other commodities. Various commodity indices confirm that the decline in oil prices was part of a larger trend. What Next? If falling oil prices – and indeed, prices of other commodities – are warning signals of things to come, tightened liquidity and further deterioration of growth may be on the cards in the near future. Poor business confidence strongly suggests a continuation of the present weak growth trend. In anticipation of tightened liquidity, some monetary authorities have taken steps to pre-empt a crisis by loosening their monetary policies. This includes considering or even embarking on mostly small-scale, quantitative-easing (bond-purchase) programmes to avert the threat of deflation. By the CEIC Database Team 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

22nd June 2015 CEIC Thematic Analysis: Cheap Oil as a Symptom of Weak Demand

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