|
Oil
giveth, and oil taketh away (from Kuwait, Saudi Arabia, Iraq,
Venezuela, Russia… and even from the American oil patch).
There
is certainly a positive economic side to much lower oil prices, especially
for countries that import nearly all their oil and gas. Germany and Japan
come to mind, but there are many others. For them, lower oil prices act like
a large nationwide tax cut, not just for consumers but also for businesses.
And it impacts natural gas.
Natural
gas in the international markets is often priced based on oil prices,
something that natural gas importers – whether the EU, Japan,
Korea, or China – have fought for years as oil prices kept rising.
While their natural gas costs went up with oil, natural gas prices
in the US fell, which has given US-based industries a big cost
advantage. But that talk of delinking natural gas prices from plunging oil
prices has suddenly stopped, mysteriously.
In
those countries, energy-dependent industrial producers are going to
breathe a big sigh of relief. Refiners and the entire distribution
network pocket fatter margins, and they’re smiling all the way to
the bank. Consumers are smiling too. In these countries, everyone is happy
with a lower price of oil.
In
countries that also produce oil and gas, such as the US, it’s a mixed bag.
There are many beneficiaries. But the oil price plunge threatens to decimate
a crucial, nearly miraculous growth industry, where jobs are plentiful and
well-paid, where capital expenditures are enormous, and where secondary
industries have sprung up to serve the boom: steel-pipe makers, tank-car
makers, railroads, frack-sand producers…. And there the bloodletting has
already started.
Then
there are countries where oil is the dominant industry, and there are no
winners among them.
The
chart shows some of the presumed winners and losers, assuming the low price of
oil persists through 2015. There are a lot of ifs and caveats in these sorts
of calculations and projections, but they do make a point. Note how the
economies of the winners on this list win just a little while the losers get
eviscerated:
I
wonder where Norway, whose economy depends on oil, fits on this list. Did it fall
off the bottom? New oil projects are getting scrapped amid falling
production and plunging prices [Norway
May Need to Build a Post-Oil Economy Pronto].
In the
same breath, we may have to make room on this list for our own
petro-states, such as North Dakota.
I’ve
lived through an oil bust in Texas and Oklahoma, ran a business during it,
watched how banks collapsed, how commercial and residential real estate plummeted, how
formerly booming, expensive restaurants ran out of customers and shut down,
how oil companies moved their headquarters from Tulsa to Houston, how all
construction came to a halt, how one famous futuristic high-rise was capped at
the eighth floor, leaving it as an ominous granite-clad oval stump,
how Tulsa lost about 15% of its jobs over the years that followed, how
young educated adults fled because there was nothing to do for them…. It
was a tough time.
A
similar thing happened in Oklahoma City. In Dallas, real estate crashed
and banks collapsed as well, but the Texas economy was much larger
and much more diversified, and the oil companies that left Tulsa ended
up in Houston. So the results weren’t quite as dramatic, and the Texas
economy recovered fairly quickly. Oil busts, after these heady
booms, especially in non-diversified local economies,
can exact a terrible price even in the US oil patch.
In the
US oil sector, revenues are already plunging. Earnings will get hit.
Liquidity is drying up. And stocks got eviscerated. Read… Oil
and Gas Bloodbath Spreads to Junk Bonds, Leveraged Loans. Defaults Next
| |