Economists are still hotly debating if the oil crash is a net positive for advanced economies.
‘I’m done’: Alberta’s laid-off oil workers instructed to abandon industry in worst downturn they’ve ever seen
Alberta lost 19,600 jobs this past year – the most since 1982 and lots of industry veterans are deciding they are able to no more take the boom and bust roller-coaster. Read on
Optimists argue that cheap oil is a good thing for consumers and commodity-sensitive businesses, while pessimists indicate the hit to energy-related investment and possible spillover into the economic climate.
A new note from Francisco Blanch at Bank of the usa Merrill Lynch, however, puts the oil move right into a much bigger perspective, arguing that the sustained price plunge “will push back $3 trillion annually from oil producers to global consumers, setting happens for one from the largest transfers of wealth in human history.”
Blanch and the team already see evidence that the fall in the price of crude has an optimistic impact on demand, and say that it could accelerate even more if prices don’t pick up.
Says Blanch: “Alternatively in a lower oil price scenario, e.g. if prices were to average just US$40 within the next five years which is close to the current forward curve, demand would grow by 1.5 million barrels each day, which is 0.3 above our base case. Finally, at $20 oil demand would grow by an explosive by 1.7 per year typically, 0.5 over the base case, on our estimates.”
Related
- Oilpatch braces for ‘ugly’ results with more cuts likely to dividends, jobs and spendingOPEC makes strongest plea yet for cope with rivals to stop oil’s 72% free fallForget the glut, even market insiders are saying oil has entered irrational territory
-
-
-
Meanwhile, in emerging markets, where much of the storyline of late continues to be about disappointing economic growth, Blanch still sees huge upside potential in terms of automobile penetration and consumption.
Take China for example, in which the strategist sees the oil plunge helping to fuel a boom in SUV sales: “Moreover, the low oil prices are encouraging Chinese customers to buy increasingly larger cars. Sales of SUVs, the most heavy passenger vehicles category, are up 60 per cent year-on-year within the last 3 months, while overall passenger vehicle sales are increasing robustly at 22 percent.”
And it’s not just emerging markets where the impact of cheaper gasoline is being seen.
After many years of stagnation, vehicle miles traveled in the U.S. clearly ticked higher in 2015.
Combine these trends using the decline in, say, Saudi Arabia’s foreign currency reserves, or the stock cost of any oil company, and you may see the dramatic wealth shifts now taking place in the world.
Bloomberg.com
