Happy New Year!
The world certainly looks more challenging in 2015 than in 2014. However things don’t always turn out as we expect. For example, who would have forecast an oil price of $50/barrel 12, or even six, months ago?
Unless you are in Russia, Iran, Iraq, Venezuela, Nigeria or an Upstream producer, the falling oil price is definitely good news for most, with some clear winners. The world economy and lubricants consumers will grow faster, consume more goods and travel further with lower priced fuel. Economic growth could even be higher than the recent 3.4% Goldman Sachs forecast.
Despite the optimism, the global economic outlook still appears shaky. Japan and the Eurozone are stuck. Russia is going backwards. China is “slipping” as it changes from a fixed investment and export-oriented economy into a more consumer-based one. Yet, it is still expected to grow at close to 7% and be the world's largest car and lubricant market, despite some questionable aspects of governance.
Back in 1990 I attended a Conference Board meeting in a recently-unified Berlin, where we looked at scenarios for the emerging eastern European markets. While we could foresee success in countries such as Poland and then Czechoslovakia, none of us had a positive view for the outcomes in Russia. Thirty years later, the Russian scenario seems to be coming home to roost as overseas automakers re-think their strategies and domestic producers huddle together for strength.
While the strong oil prices allowed immense expansion in recent years, the underlying factors appear to be reasserting themselves. The lack of governance and rule of law look likely to derail expansion for some considerable period. Those who invested on the basis of the growth and import substitution narrative had better hope their assests were financed in roubles or the returns in hard currency may well be low.
By contrast India, with its new government, seems to building on its potential. A strong legal system with IP protection should provide the foundations for a strong recovery that might even beat the Chinese growth rate.
In growth terms the star of the mature markets is the US. Having sorted out its banks, and even made a profit in the process, the economy is growing at more than 3% and may even be pulling away faster. PMI is still positive at 54, compared with many figures in the 40s elsewhere. How has the US truly recovered? Flexibility, quantitative easing, reasonable governance and innovation - all of these have certainly helped but the system is not perfect.
With a slow decline in mature lubricants markets, the expectation is that all lubricants businesses will seek to do more with less. This puts an emphasis on maximising the return on all internet and other cost saving investments. The majors will seek to relocate assets towards the faster growing Asia markets, leaving more flexible and nimble competitors to service clients.
In the world of technology, 'smart everything' appears to be the way forward. From smart self-parking cars, we now see record-breaking distances for journeys in driverless vehicles. The connected car, using integrated data solutions, is set to yield new challenges and opportunities.
As always we have to be careful not to continue to extrapolate current trends. There have been 44 recent recessions and apparently none of them were predicted by our esteemed economists! As Mark Twain observed: “the Mississippi is getting shorter by 1.3 miles every year; looking forward, by 2600 the river will only be 1.75 miles long!” We need to keep expecting the unexpected and deal with the consequences.
To that end, OATS is continuing to develop databases which provide the maximum support to marketers and technicians alike. For example, we are delighted to now be assisting Morris Lubricants with their recently launched "whatoildoIneed" website. Their expert views on additive supplements make interesting reading and show just how much independent producers are contributing to innovation within the lubricants industry.
Without question, the products and services being built upon our own earlFUSiON platform are already attracting a great deal of interest. To find out more, or comment on anything you have read in this month's Bulletin, simply contact us by e-mail or follow our updates on social media via Twitter @Oats_Ltd, Facebook, LinkedIn and Google+.
Happy New Year: it should be interesting - as Confucius might say.
Sebastian Crawshaw
Chairman - OATS