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Low oil prices to boost output

Hydrocarbon Engineering,

PwC economists have said that net oil importing economies like the Eurozone, Japan and the US are set to be the winners of low oil prices, however, the effects will not be felt evenly across economic sectors. They have assumed that the average price of a barrel of oil this year will be approximately US$55, which is approximately 50% lower than in June last year.

Richard Boxshall, PwC Senior Economist said, “some large corporations may not feel the benefits straight away due to having hedged against higher oil prices or being bound by long term contracts with their suppliers. Households may also have to wait for oil price cuts to be passed on down the supply chain to consumers.

Analysis findings

PwC has estimated the direct first order benefit of a low oil price for the industrial, residential, transport and services sector in the US and key Eurozone economies. The analysis carried out has shown that:

  • The US transport and industrial sectors could benefit by US$300 billion in 2015. The drop in operating costs could lead to an increase in production levels, which in turn should push prices down and stimulate consumption.
  • The transport sector should also be the big winner in the Eurozone to the tune of approximately US$65 billion, but the full effects could take time to feed through.
  • Due to its lower energy efficiency, Greece could benefit relatively more than Germany from lower oil prices.

Also, following the announcement of the 1.1 trillion Euro quantitative easing (QE) programme in the Eurozone, PwC economists have warned that this could lead to a further depreciation of the Euro against the dollar. And doubt about Greece’s future in the Eurozone could also put downward pressure on the single currency.

Boxshall commented, “we expect QEQ to provide a short term boost to the Eurozone economy through increased borrowing and net exports. But structural reforms to labour and product markets are still essential for improving the long term potential growth rate of the Eurozone.”

Edited from press release by Claira Lloyd

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