Jun 30, 2009|
What will happen to oil demand?
Oil to make a slow recovery
There may be talks of green shoots in the global economy but the International Energy Agency (IEA) has painted a somewhat gloomy picture. As reported on Bloomberg, it has cut five-year forecasts for global crude demand because of the economic slump and is of the opinion that consumption will not regain last year's levels until 2012. For instance, in 2008 consumption was pegged at 85.8 m barrels a day and it is only in 2012 that the consumption will rise above what was witnessed in 2008 at 86.8 m barrels a day. This means that the repercussions of the global economic crisis will be felt for a long time given how deep the crisis has been and demand is likely to get severely impacted.
What is important to note is the fact that IEA has made its forecasts assuming higher GDP growth. Therefore, if the GDP growth is lower at around 3%, then oil demand would fail to reach last year's levels even by 2014. Interestingly, the IEA is of the opinion that the drop in oil consumption has postponed the threat of a potential supply shortfall. The question that arises then is where would oil prices head. It would seem that a slowdown in pickup of oil demand would probably keep prices low. But in the longer term, supply side issues still persist in the form of depleting oil fields, not much improvement in technology in terms of extracting oil and alternate sources of energy not making too much of a headway. And of course, there is always the possibility of geo-political factors having a significant impact on the direction of oil prices. Which is why despite the current recession, in the longer term, the movement of crude prices moving upwards seems like a more likely scenario.
The specter of unemployment looms in Asia
Just as the Asian economies have proven to be on a firmer footing as compared to their developed counterparts, so do they have the advantage when it comes to unemployment. While the unemployment rates across the globe have been rising, they are said to be not too high in Asia when compared to the US or the European economies. However, all may not be hunky dory. The heavy dependence on exports and rising commodity prices mean that the mettle of Asian economies will be tested when it comes to aversion to large layoffs. And everyone seems to be caught in a vicious cycle. Unless demand rejuvenates to fuel economies, new jobs will not be created and lack of jobs in turn would mean lack of income, thereby further dampening demand. Therefore, the recovery from a global crisis of such magnitude is likely to be a gradual process.
While India and China are likely to weather the storm better, Hong Kong, Korea, Malaysia, Singapore, Taiwan and Thailand are more exposed to this crisis. What's more, even if the unemployment rates in these economies is lower as compared to the developed world, the region's economic activity as a whole is actually worse than what it was in the Asian crisis. The key, therefore, for Asian economies is how strong their respective domestic markets will be given that exports are in disarray. In that aspect, India and China, though they are witnessing a slowdown, are likely to suffer less solely on the strength of the demand in their respective domestic markets. But of course, these two economies have their own set of problems. In India's case it is lack of infrastructure and mounting government deficits.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
Aug 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Aug 17, 2017
PersonalFN simplifies the mutual fund account statement for you.
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407