Be careful for what you wish for - that's what they say. You may have filled-up your car with petrol ('gas' in the US) and wished that the cash numbers on the pump didn't whizz around quite so quickly. Depending on the level of petroleum taxation that you are subject to, you may be paying a lot more for your distilled petroleum products than you might pay for a barrel of Brent Crude or West Texas Intermediate.
The Organisation of Petroleum Exporting Countries, led by Saudi Arabia with around 20% of the planet's proven reserves, has decided not to turn off the taps in response to weak global demand. China's economic growth has faltered: President Xi of China has decided on a policy of the New Normal, where inflationary credit and housing bubbles will be deflated as gently as possible. (Have you ever tried to gently burst a balloon?) Finally some reality will return to China - the ghost cities can be written off, the under-used factories can be demolished, the stockmarket will return to its senses - and some sensible market-driven economics can take over in China, the oldest capitalist society on the planet. Before that happens though, there will be a crash (or 'hard landing' - whatever you want to call it). Not just in China, but wherever Chinese demand has propped-up economies over the last few decades - such as the Australian iron-ore industry. On the other side of the world, Europe is a long-term basket-case, with a hotch-potch of economies either barely growing or in recession. Spain and Greece now, perversely, show the highest level of growth on the continent, but only due to their near-terminal previous decline. Growth prospects are dire and a Greek exit from the Eurozone is now a realistic prospect again.
The frantic pumping of non-OPEC economies like Nigeria and Venezuela (which has another 20% of global oil reserves) desperate to keep their revenues high - to either prop-up growth or to buy-off young and restive populations - and the weak demand has led the price of oil to collapse. Note, however, the oil price trend in the graph right: the price of a barrel only passed $50 in earnest around 2004, and before that it had most often been between $20 and $40 per barrel. I recall graduating from college back in the 1990s and finding that the price of oil had crashed to $10 per barrel - the oil industry had laid off 50,000 exploration geologists and my intended career path as a geologist was in tatters (but, like I say, be careful what you wish for: If I had gone into oil, I wouldn't be writing this to you today). Today's price of $50 per barrel should be seen not as a new low, but as a temporary resting place on the journey back to the 'new normal.'
Interestingly, much of the oil industry in the US is uneconomic at less than $80/barrel, but the scary fact is that many other states around the world depend on high oil prices and petro-export-dollars to be able to balance their budgets and to finance all those infrastructure projects and skyscrapers. Even Saudi Arabia, which sits on a lake of oil and has seemingly bottomless pockets, will miss the hundreds of billions of dollars of revenue that a lower oil price will bring them. Iran, Iraq, Libya, Nigeria, Russia, Venezuela and Saudi Arabia will all run budget deficits with a sub-$80 oil price. Depending on their credit lines, they may be able to survive their newly straightened circumstances for a while, but if the oil price stays low, then they will all have to curtail their spending - including on infrastructure and on other building products. Expect wallboard demand to reduce in these countries - and for some new plant projects and expansions to start to look a little too optimistic.
On the other side of the equation, countries that do not rely on oil revenues for their spending, and instead have become more used to paying high prices for oil, will be breathing a sigh of relief at the fall. They will potentially have more room in their budgets for infrastructure and other building projects, thereby boosting gypsum demand. Despite the deflationary influence of a falling oil price, the new lower cost of this crucial commodity (and the falling price of all of the things made and transported using it) will be an economic bonus to all of those struggling economies, especially in Europe. Expect coal prices to fall in tandem with oil. Will that lead to increased coal-fired power generation and therefore an increase in synthetic gypsum generation? Maybe. We'll have to wait and see.
