OIL PRICE ADJUSTMENTS, FEBRUARY 2016
A combination of global supply and demand issues have forced oil prices to decline dramatically. West Texas Intermediate crude oil prices are currently near $30 per barrel. Prices may decline further as the market searches for a bottom. Some analysts suggest oil prices could drop below $20 per barrel. Even at current levels, oil prices are well below the levels incorporated into PCA’s fall forecast.
If oil prices stay near $30 per barrel, or lower, several consequences to cement consumption could arise that would impact the fall forecast projections. First, lower oil prices may support higher consumer spending and overall economic growth. In the context of a stronger growth environment, a small and delayed positive impact on construction activity may materialize. Unfortunately, there are several powerful offsets to this positive potential impact. Oil well drilling, for example, will decline further than expected. Second, the adverse impact in oil producing regions on collateral construction such as housing, retail and infrastructure supporting the oil fields will be more severe than expected. Third, oil and gas junk bonds defaults will increase and raise risks attached to foreign sovereign debt – all potentially adversely impacting credit conditions.