Today, the global economy encounters several ups and downs including oil price, Chinese economic policies, civil unrests, Russian political policies and American presidential election. In other words, these factors make economic forecast a difficult task. However, Jerry Gilmore as the president and CEO of Elm Grove Resources, a private and independent oil and gas exploration and production company, could manage to overcome the vague global situation and come to a clear picture of world economy in 2016.
MANA correspondent managed an interview with him about the oil market and world economy in 2016
How do you evaluate oil economy in 2016?
When we talk about the oil economy in any one year, keep in mind that there are many layers to this discussion; domestic, international, upstream, midstream, downstream. They are all connected but with convoluted relationships that that also depend on other non-oil economic factors in the world. The oil economy as a whole has changed dramatically in the last decade. New technologies have allowed the biggest consuming nation once again to compete as a top three producer, causing a shift in market share away from OPEC. The loss of near absolute control of the market by that group resulted in an abrupt and intense response to maintain market share. Ultimately, the group will lose this battle to the free market laws of supply and demand, but the markets will continue to see volatility through 2016 until balance is achieved. I do not see that balance occurring until sometime in 2017. Additionally, many believe that the Saudi decision against acting as ‘swing producer’ was a strategic attempt to destabilize the Russian economy.
Considering a reduction in oil price, do you think we will experience a developing economy in 2016?
Robust developing economies have historically been somewhat counter-cyclical to oil busts and booms. Energy prices are one of the largest expenses to growing economies. Therefore, a drop in energy prices frees capital and facilitates faster growth within developing countries. I expect that the depressed commodity prices are already helping economies worldwide, but because there is a lag, we will not see all the ways consuming nations have benefited until sometime in the future.
What is your prediction about the world economy situation in 2016?
In 2016, there will be continued turmoil worldwide. Countries dependent upon higher oil prices, such as South America, will continue to suffer dramatically creating much civil unrest. The relaxation of sanctions against Iran will further deteriorate relations in the Middle East as each producer attempts to maintain and grow market share. Russia is likely to react in ways that we cannot predict, possibly even militarily. Their loss in revenue will further depress their domestic economy and create internal strife and tensions. Countries that rely heavily on oil imports should say farewell with the lower prices.
How do you evaluate the chinese economy?
China’s economy has benefited from robust growth for a number of years, but that growth rate is slowing as has been expected. Labor force, productivity, trade agreements and a favorable political climate are all factors that have attracted substantial foreign direct investment (FDI) dollars. That influx of capital has had substantial positive impact on development, but continued growth at such high rates is likely unsustainable in the long term. The reported numbers are misleading because much of what is made public is controlled by the government. Relative to other nations, China has provided substantial subsidies targeting specific industries to control markets worldwide, whether the businesses are profitable or not. It is an attempt to eliminate competition in those markets utilizing monopolistic tactics on an international level.
How does the chinese economy affect the world trade?
I believe that China is a huge factor in world trade. They are expected to surpass the U.S. this year as the largest consuming nation in the world. Their consumption rate has been growing at a rapid rate. On the other side of the trade equation, the exporting of goods and services, China is already the leader, above both the US and the European Union. It is such an important factor in the United States that it has become a top issue in the 2016 presidential campaign for Donald Trump. He has made it clear that their trade deals with China are unacceptable. China is benefiting to the tune of billions of dollars because of poor trade bills signed by American politicians (per Trump). Without trade, the growth of an economy is hindered, whether that trade is on a micro scale (with your next door neighbor) or on a macro scale (with a burgeoning nation). If the economy of China contracts, or slows in growth, the impact on world trade will be substantial.