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One Region That Could Benefit Most From Low Oil Prices

One Region That Could Benefit Most From Low Oil Prices

The current low price of oil so far has been a mixed blessing for the world economy.

Some countries, such as the poor OPEC member Venezuela, are hurt by the price drop. Many others benefit, in most cases simply because their businesses and consumers pay less for oil. And some, such as Canada, have trouble in their oil-producing provinces, but expect booms elsewhere.

In East Asia, though, the 50 percent drop in the price of crude since June appears to have created opportunities for economic growth. And the biggest winner here is also the biggest player in the region, China, which could see its economy rely less on exports and more on demand by its own population.

Related: Top Five Possible Energy Surprises For 2015

This is a “fantastic opportunity” not only for Chinese manufacturers but also for other countries that rely on exports, according to Stephen Roach, a senior fellow at Yale’s Jackson Institute of Global Affairs.

“2015 could well be the year when China demonstrates that it is very much in control of its destiny – that it can contain the downside of a carefully engineered slowdown without succumbing to the dreaded hard landing that so many believe is inevitable,” Roach told Bloomberg News. “The domestic demand story is about to come alive in a way we have never seen.”

China is also an oil producer, the world’s fourth largest, producing more than 4 million barrels per day. Yet it also is the world’s largest consumer of foreign oil, importing nearly 60 percent of its stocks, according to China’s National Bureau of Statistics. And it has saved an estimated $17 billion from the lower cost of oil imports in 2014, according Wang Tao, UBS’s chief economist.

What’s more, China’s savings on oil and the products that rely on it give can be invested inexpensively in its strategic energy reserves, and keep inflation and producer prices low, according to Kenneth Courtis, the chairman of Starford Holdings. “In the wildest dream of great news for the Chinese economy, no one could have dreamed of such a positive scenario,” he said.

China isn’t the only country in East Asia that stands to benefit from the low oil prices. Even those that are oil exporters, such as Indonesia and Malaysia, have been able to end expensive oil subsidies. As Indonesian President Joko Widodo said at the Asia Pacific Economic Cooperation conference in Beijing in November, that money now can be spent on such projects as national infrastructure.

Related: China’s Pivot Toward Europe May Cut USA Out Of Deal

Another beneficiary may be India. Long eclipsed by China in bids for oil imports, Indian national oil companies now have the opportunity to afford acquisitions and mergers of foreign companies, especially now that China’s attention appears to have been shifted from the international economic scene to its huge domestic market.

But these are only opportunities, and how each country addresses them will determine how much they benefit. But one man who knows as much about oil as anyone – Saudi Oil Minister Ali al-Naimi – says low-cost oil is good for the global economy.

On Dec. 21, al-Naimi told a conference in Abu Dhabi, the capital of the United Arab Emirates, “Current prices … stimulate global economic growth, leading ultimately to an ‎increase in global demand and a slowdown in the growth of supplies.” In other words, he believes inexpensive oil puts supply and demand back in balance, and that the price of oil will stabilize at around $70 per barrel.

By Andy Tully of Oilprice.com

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