Oil Prices 80% Likely Not To Return To Previous Levels

Business, China, Company Strategy, Economics, Middle East, Oil & Gas, US


By John Richardson

In yesterday’s world the ongoing geopolitical tensions between Saudi Arabia and Iran would have resulted in a sustained rally in oil prices. But this rally lasted barely couple of days as a result of persistently high US oil stocks and more alarming data emerging from China, such as the biggest-ever decline in rail freight movements, which occurred in 2015.

China has been responsible for half of the economic stimulus pumped into the global economy since 2008. Yes, half, and so the endless “will they won’t they” debate about whether or not the Fed would raise interest rates in 2015 was largely a distraction. What people instead needed to focus on was the implications of China’s decision to withdraw stimulus, which was made way back in November 2013.

Fellow blogger Paul Hodges identifies the 2016 consequences of China’s ongoing decision to withdraw stimulus as follows:

  • We have not yet had the final “give-up rally” in energy markets, which is almost inevitable after a fall of this magnitude.  The reason is that consensus wisdom still believes that prices will return to previous highs.  Of course they might be proved right – but the odds against must be 80% at this point.
  • This means investors have not yet realised that much of the $1.2tn invested in new energy production, and the $150bn planned in petchem investment, will never be repaid.  This will be a great shock, when reality dawns.
  • Even more worrying is the $19tn that has been invested in emerging market debt over the past five years – more than the size of the US economy.  How much of this will ever be repaid is anyone’s guess.
  • And then there is the rise in the world’s major interest rate benchmark – the US 10-year yield.  It is almost unbelievable that this could have risen by 25% in a year, and yet investors and the media still instead obsess over the potential impact of a 0.25% rise in US short-term rates.

Hear, hear.

What else do we have to consider for 2016? Rising trade tensions, deflation – and also social unrest. My post on Friday will look in more detail on how rising trade tensions and deflation will effect the petrochemicals business


2016: Trade Tensions, Social Unrest And Deflation


By John Richardson THE world by 2020 – as Paul Hodges and I discussed in C...

Learn more

Yuan Devaluation: Next Phase Of The Great Unwinding....


…..China’s purified terephthalic exports could easily rise to 1m ton...

Learn more
More posts
Here is your guide to Asian and Global HDPE markets in Q4 this year and in 2022

By John Richardson THE COMING COLLAPSE of China, as I’ve discussed is before, is like commercially...

China’s “Common prosperity” uncertainties multiply as we head into the unknown

By John Richardson DON’T SAY I didn’t warn you. This article in The Wall Street Journal confirms...

China provides major climate hope as latest IEA report underlines that it is all about the developing world

By John Richardson WHEN I worked for a UK local newspaper as a “cub” or junior reporter in the 1...

China’s less commodity intensive future requires major petchem strategic rethink

By John Richardson THE THING about the collapse of China is that, like commercially viable nuclear f...

China pulls multiple policy levers to fix energy shortages but don’t forget secular fall in demand

By John Richardson Executive Summary CHINA’S POWER shortages could fixed by the end of this month ...

China petchem project cancellations on “common prosperity” may not mean higher imports

By John Richardson IT IS BEING suggested that China’s “common prosperity” policy pivot, the bi...

China traditional Q4 petchems demand increase unlikely because of economic rebalancing

By John Richardson A NEW RESEARCH PAPER by economists Kenneth Rogoff and Yuanchen Yang underlines th...

China carbon limits and Evergrande tied together as short term growth challenges build

By John Richardson Executive summary THE LIKELIHOOD that 227,000 tonnes of China’s polyethylene (P...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more