Forecasting a trend?
A few days ago a friend sent me an article on a famous futurologist and trend-forecaster of these days who has correctly predicted most of the economic mega-events of the last decades. The article was about the latest predictions on the US economy and its consequences, written at the end of last year.
To say it mildly: it was kind of extremely worrying. The talk was of almost complete collapse, the dollar down to 10 cents to the Euro within the coming years and sentences like: “In 2008, Americans will wake up to the worst economic times that anyone alive has ever seen.”
What was adding to the picture was that his predictions, for over two decades on the major TV-channels at the end of the year, has now been banned.
Having the focus on energy, the question here was of course, what this would mean for the oil price and everything that is related with it.
If this forecast is becoming reality, it would mean a drastic reduction in global oil demand. The US, with overall demand of 21-22 mm bpd and imports of about 12+ mm bpd, is by far the biggest consumer of oil. Would this market collapse, and the economies closely linked also take damage, the oil price would follow suit. Not only would speculating be greatly reduced, taking off about 25 dollar (or more) off the barrel, but we would, within a relatively short time be confronted with a market flooded with oil, further reducing the price.
This would make a lot of projects suddenly economically not viable anymore: deep-water, arctic, tar-sands that have been calculated on relatively high oil prices (and the expectation of “the sky is the limit”). Positive would then be that this would ease off steel and work-force costs for projects that will continue.
Nevertheless it would do great damage to the industry. We would see a repeat of the last time the prices were very deep, of which the industry has not really recovered, as a lot of people decided not to work anymore in the industry, and students chose for other sciences to explore than the ones needed for energy exploitation.
A low oil price may have further consequences, as for example the bio-fuels are priced alongside. They would be the first to become financially unviable.
Gas and LNG are also linked to the oil price and quite a few projects may end up in the dustbin as the expected demand may not be realistic anymore and the calculated price neither.
A drastically lower oil price will also have consequences for the producer-countries that now have gathered vast sums in the wealth-funds. These funds may not grow anymore that fast and if the prediction on the value of the dollar becomes true, may not be worth much anymore anyway. What this may mean for some very ambitious projects in the Middle East one can imagine.
There are many more dire consequences that would surface from such a reality, albeit that there will also be winners. The winners will probably be those relatively poor people that now suffer most from the current high price, in economies that are not too dependent on the largest economy of the world.
Asia may also not be too hard hit, as much of the markets are regulated and governed. What the effects of the dollar-decline will be, will need to be seen.
Overall, it will have major consequences for our economies and our lives in the coming years.
If the picture becomes reality, that is.
Expect the unexpected,
All the best,
Alexander
