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February 2015 • SMT Magazine 15 than 3% GDP (not a hard number). Needless to say, political stability is crucial. If we bet on this dynamic, the 2015 global economy is not felt as robust as desired. The U.S. economy perhaps will be the brightest spot on the globe (above 3% GDP). The impact of oil prices, more complicated and elusive than is obvious, is yet to evolve. Oil dynamics No one can make a precise call of the oil prices for next month or at the end of 2015. But we do know what are in play. The decision made by OPEC last November to keep up their production output sent the crude oil prices tum- bling. This decision appears to be a substantive deviation from OPEC's historical man- date—to keep price high by limiting global oil produc- tion. Another new force is the booming U.S. shale oil output during the last five years as the result of increased efficiency and ample financial capitals. According to the International Energy Agency (IEA) report, the new U.S. shale fields have made the U.S. the top oil producer in 2014, generating 12.4 million barrels/day (Russia 11.0 million barrels/day, Saudi Arabia 9.5 million barrels/day, Canada 4.2 million barrels/day, China 4.1 million barrels/ day). Advanced technology and smart engineer- ing deployment make lower cost and higher output shale oil possible. Lower cost and sus- tained output could push the price down fur- ther. Most OPEC countries' economies need to sell oil above $100/barrel to balance their bud- gets [1] . Yet Saudi Arabia officials indicated their economy can survive for at least two years with low prices partly to its huge energy reserve [2] . Ca- nadian oil sands producers have not indicated their willingness to reduce production from the existing established operations. At this point, it seems that everyone looks to others to cut pro- duction. And the oil continues to pile up. The declining oil price indeed is picking its winners and losers. Losers include major oil exporters, oil producers, and oil fields ser- vice providers. Countries heavily rely- ing on oil exports, such as Russia, Iran, Nigeria, Venezuela, as well as, aspiring oil exporters, such as Brazil, are facing severe eco- nomic challenges. On the oth- er side of the spectrum, lower oil prices benefit consum- ers, transportation sector and manufacturing costs, as well as the oil importing countries (e.g., Japan, Germany). As to individual compa- nies, this is a shake-up pro- cess. Many less efficient com- panies will be driven out of the market. The extent of im- pact, simply put, varies with the industry sector that is di- rectly or indirectly linked to the oil industry. Within oil in- dustry, the prominent among the variables include where the business is positioned in the food chain—upstream to downstream, the efficiency of core engineering/technology asso- ciated with the business, the level of the bal- ance sheet, and the market duration of low oil prices. The shakeout would be largely linked to the operation efficiency, thus the break-even cost is $35 or $55 or $70. How long the low prices market will last is a billion-dollar question. Although oil prices con- stitute a small fraction of the global economy, its trickle-down impact and underlying implica- tions can be profound. How will the evolving oil price play out? Is this low oil price a transitory passing or a lon- ger-term trend? How long will it take to reach the stabilized price and what is the stabilized price? More importantly, is this a transient sup- ply glut or a sustained declining demand or both? It is anyone's guess. Nonetheless, here is my take: Barring substantial geopolitical events and other shocks, oil price would likely stay at NeW year OuTLOOK: WHaT CaN We eXPeCT IN 2015? continues smt prospeCts & perspeCtives the declining oil price indeed is picking its winners and losers. losers include major oil exporters, oil producers, and oil fields service providers. Countries heavily relying on oil exports, such as russia, iran, nigeria, venezuela, as well as, aspiring oil exporters, such as Brazil, are facing severe economic challenges. " "