HOUSTON – With oil prices still low, and many oil and gas companies laying off thousands, the oil downturn is marking a significant turning point in the energy industry, a panelist discussed Monday at IHS Energy CERAWeek in Houston.
The US GDP growth has been surprisingly resilient and there seems to be no deflation threat, remarked Jim Burkhard, chief researcher, global oil markets and energy scenarios, CERAWeek Vice Chairman, IHS.
“The US consumer confidence is also at the highest levels since the financial crisis and all these factors point to the US economy remaining strong throughout the year.”
There are a few trends and turning points in the oil and gas economy that are worth noting, Burkhard pointed out. OPEC is not what it used to be – it’s not dead, but it is not what it used to be, he stated. It’s no longer a balancer in the oil market. “The organization changed their tune back in November.”
Burkhard added: “Next big turning point in the global economy is the US. Is it going to be the new global swing producer? Is there a defining regulator in the oil market, now? The US as a producer has greatly impacted the financial market and became a game changer. However, there is a big uncertainty as when prices will rebound and how quickly, considering the stance that OPEC made and the amounts of production coming out of the States.”
Prices will dip again, this year, he stated, but how much, “we don’t know. The cost of supply is likely to be less, probably a lot less.”
Global growth has been “remarkably” steady, at a 2-3% growth per year. In the past four years, the growth in the developed world has increased 1-2% and growth in the emerging world has dropped by 7%. “Is it the great divergent or great unraveling?,” Burkhard commented.
He then stated four trends that are currently being analyzed within the oil and gas market:
- Debt – countries are working to de-leverage. The US and UK have made strides and have grown, but at a slower rate, but in the emerging world, it is the opposite, Burkhard added. “Chinese debt has doubled in the past seven years, but no country has survived that kind of debt explosion unless something major happened.”
- Oil prices – in the US, companies are “hurting; and we don’t see a rebound in prices any time soon.”
- Monetary – many countries are cutting rates, such as Europe, China, and Russia. “This trend will continue throughout 2015,” Burkhard commented.
- Exchange rate – the dollar is increasing, making the US poised for a stronger growth, with the US consumer being the beneficiary. “Interest rates are still low and many are benefitting in this country,” he said.
“Once you piece these trends together we see that there is a small positive occurring in the global economy, which is a few tenths of a growth. Why focus on the US consumer? Because they are spending trillions of dollars, making the dollar even stronger,” he stated.
Burkhard added: another big turning point – the big worry – the biggest concern, is China. Last year, China’s GDP was the lowest since the 90s. “The best we think China can do is 6.5 or 6% GDP growth, with many asking: at what point do they throw in the towel? So, we expect a dramatic slowdown in the near future.”