By Joe Petrowski
Recently many analysts, including the EIA, anticipate reduced global oil consumption and increased non-OPEC production. The price of petroleum is closely tied to world growth and the truth is that outside of the US growth is not only slowing but, in many countries, we are seeing a recession beginning or on the near horizon.
It is not only the trade disputes and a slowdown in Asia, but a more fundamentally structural problems led by aging populations and suffocating regulations. While China’s median age is 38 (same as the US) for Japan and Germany it’s 48; Italy 46; the Scandinavian countries 44; Spain, Portugal and Switzerland 43; France 42 and Russia 40. This indicates declining productivity.
The European countries who have had negative interest rates are in a classic liquidity trap, where lower interest rates do not spur economic activity. Italy, the Iberian countries and Greece are already in a recession. China, while still growing at 6%, is experiencing its lowest growth in 30 years. With growth outside the US at best 1%, it will be almost impossible for petroleum growth to be ½ of 1% which will keep world demand under 99 million/barrels/day. And with a strong dollar and increased supply, we will see our first stock build since the great recession and can expect WTI and BRENT to trade in the $60 to $70 range.
With no change in tax policy, regulation or population trends (deaths greater than births in all of Europe including Russia) lower interest rates will not spur growth and a stronger dollar will only acerbate the US trade balance. That can lead the US to embrace more restrictive trade that will worsen the economic outlook for everyone.
Joe Petrowski has had a long career in international commodity trading, energy and retail management and public policy development. He currently serves as the fuel director of Yesway convenience stores and an adviser to their Chairman on Operations and Merchandising, as well as a director of Xebec, a Canadian manufacturer of Clean technology and Green Print, a carbon mitigation firm. Petrowski previously served as the president and CEO of Gulf Oil LP and was elected to the Gulf Oil LP Board of Directors and then as CEO of the now combined Gulf Oil and Cumberland Farms. He is Managing Director of Mercantor Partners, a private equity firm investing in convenience and energy distribution.