Home' Trinidad and Tobago Guardian : January 17th 2016 Contents SBG14 FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JANUARY 17 • 2016
Since the new year, the price
of oil has surprised even the
most bearish speculators,
plunging by 18 per cent. On
January 12 West Texas Inter-
mediate, America s bench-
mark, briefly dipped below US$30 a barrel,
its lowest level since 2003. The next day an
incipient rally was undone by the news that
American stocks of crude oil and petroleum
products had reached 1.3 billion barrels, a
Companies are hunkering down. This
week BP announced hefty job cuts and Petro-
bras, Brazil s state-controlled oil giant, slashed
Some blame factors other than supply and
demand for turning increasingly bearish. For
instance, Standard Chartered, a bank, said
that oil might need to fall as low as US$10
a barrel before speculators concede that
"matters had gone too far."
It s mostly guesswork, though. Such is
the level of uncertainty that American deriv-
atives contracts tied to deliveries in April
imply an oil price of anything from US$25
to US$56 a barrel, according to official num-
Neil Atkinson of the International Energy
Agency, a forecasting organisation, finds
much in the physical oil market to be bearish
about---particularly regarding consumption,
which was one of the few factors supporting
prices last year. The sell-off in oil in the past
two weeks has occurred concurrently with
a slide in the Chinese stock market and the
yuan, which some investors think reflects
weakness in China s economy and hence in
demand for oil. Though Atkinson acknowl-
edged that possibility, he thinks this risk is
overplayed: Figures released on January 13
showed that China imported a record 6.7
million barrels a day of oil in 2015.
The trouble, though, is that, apart from
India and a wobbly China, demand is not
looking promising anywhere this year. Europe
is unlikely to see a repeat of its relatively
strong oil-demand growth in 2015. Although
America s economy continues to grow, tight-
ening fuel-efficiency standards cap the
Drivers in the Middle East, where fuel use
rose last year, are more likely to keep their
cars off the road after their governments
raised gasoline prices or eliminated fuel sub-
sidies altogether to shore up public finances.
"There are now considerable uncertainties
about oil-demand growth globally," Atkinson
Adding to the gloom, producers are not
turning off the taps as fast as people expected.
The latest rout stems from an early-Decem-
ber OPEC meeting at which the producers
cartel abandoned output quotas. Saudi Ara-
bia, which used to curb output to rescue
prices, now refuses to play that role and
instead is bent on driving high-cost producers
out of business.
Saudi officials privately say that they expect
the price of oil to rebound late this year or
early in 2017, as global output begins to lag
behind demand. The natural decline as fields
are depleted saps production by at least five
per cent a year, they argue, even before
accounting for the effects of reductions in
new drilling by embattled oil firms.
Still, there remains huge uncertainty about
how much Iran will export when United
Nations sanctions are lifted, possibly in com-
ing weeks. What is more, Atkinson said, last
year production from high-cost wells in the
Gulf of Mexico and Canada s tar sands con-
tinued to rise because, however much oil
prices fell, operating costs were lower.
"The habit of the industry is to keep pro-
ducing for as long as you can," he said. "Any-
one who blinks first is handing a lifeline to
To be sure, production in America is falling,
thanks chiefly to cutbacks by struggling
shale-oil producers. With oil prices at US$30
a barrel, America s oilmen will have an even
tougher task shoring up output by drilling
new wells, and will face further pressure
from their bankers to reduce borrowing.
Alix Partners, a consultancy that advises
troubled companies, says that more will go
bankrupt this year. It forecasts a funding
gap of US$102 billion this year between
American oil firms projected cash flows and
their interest payments and capital spending,
up from US$83 billion in 2015.
It said that the downturn "could be one
of the most severe and prolonged ever."
However big the cutbacks, though, they
are not yet enough to reduce the glut. Global
inventories are at record highs, the IEA. says.
The Energy Information Administration, an
American governmental agency, has predicted
that they will rise a further 700,000 barrels
a day before supply and demand begin to
balance out in 2017.
It added that storage at Cushing, Okla-
homa, which can hold 73 million barrels, is
at record highs of 64 million barrels. Brian
Busch of Genscape, an industry-data gath-
erer, said that it s a similar story in China,
where ships carrying oil have been spotted
waiting at anchor out at sea because storage
tanks appeared to be full.
Based on the high level of stocks, Busch
thinks that it could take as long as a year
and a half before the bear market ends. The
only certainty is, the quicker oil prices falls,
the sooner that day will come.
The German economy, Europe s biggest, shrugged
off the Greek crisis, the economic slowdown in China
and geopolitical uncertainties to notch up "solid and
consistent growth" in 2015, the federal statistics office
With interest rates, inflation and unemployment all
around record low levels, domestic demand has become
the main growth driver, analysts said.
And in the short term at least, the massive inflow
of more than one million asylum seekers into the
country will boost demand further this year, the analysts
According to a preliminary estimate by Destatis,
German gross domestic product (GDP) expanded by
1.7 per cent in 2015, fractionally faster than the 1.6 per
cent recorded in 2014.
At the same time, Germany clocked up a surplus
on its public budget of 16.4 billion euros (US$17.9
billion), equivalent to 0.5 per cent of GDP and the
second year in a row that Germany s public finances
have been firmly in the black, the office said.
Eurozone countries are not allowed to run up deficits
in excess of 3.0 per cent of GDP and must aim for a
balanced budget for even a surplus in the longer-term.
"The economic situation in Germany in 2015 was
characterised by solid and consistent growth," said
Destatis president Dieter Sarreither.
"Almost all industrial sectors saw growth," he said.
And the increase in economic activity was driven
primarily by domestic demand, Sarreither continued.
"Consumption was the most important growth
engine in the Germany economy. Investment and
foreign trade helped support the positive trend, too,
but to a much smaller extent."
Among the different GDP components, private con-
sumption was up 1.9 per cent in 2015 and government
spending grew by 2.8 per cent; investment in machinery
and equipment advanced by 3.6 per cent; exports were
up 5.4 per cent and imports expanded by 5.7 per cent.
In concrete terms, GDP amounted to 3.027 trillion
euros in 2015, the first time ever that it has topped the
three-trillion mark, and it was generated by more than
43 million people in employment, the highest level
since unification in 1990, Destatis said.
The statisticians did not provide any precise growth
figures for the fourth quarter alone, which are not
scheduled to be released until February 12.
But in a very rough estimate, Destatis said it was
pencilling in growth of "about a quarter of a per cent"
for the last three months of 2015, compared with 0.3
per cent in the preceding quarter.
Economists welcomed the overall data.
"2015 was the year... in which the German economy,
despite many headwinds like the Greek crisis, the slow-
down in emerging markets and China and increased
geopolitical uncertainties, continued its recovery," said
ING DiBa economist Carsten Brzeski.
"Looking ahead, the two-speeded recovery, with
strong consumption and services on the one hand and
sluggish industrial production and exports on the other
hand, should continue in 2016," the expert continued.
Consumption should receive a boost from the record
influx of refugees, at least in the short term, the analyst
At the same time, low interest rates, low inflation
and high employment should also boost growth.
BayernLB economist Stefan Kipar was similarly con-
"We re projecting a continuation of the moderate
growth trend this year, as well," he said, forecasting
annual average growth of 1.8 per cent. UniCredit econ-
omist Andreas Rees said that "going forward, we think
that there is more to come both in terms of private
and public consumer expenditures. We expect GDP
growth of about two per cent for this year."
The oil market: US$20
is the new US$40
notches up solid,
growth in 2015
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