Publications: Notes at the Margin

Emerging Markets Again... (September 17, 2018)


We have been organizing the next version of our monthly report. In doing so, we encountered a problem: there are too many subjects demanding attention. Our title lists five. This week, we give each one short coverage. More details will follow.


  • The emerging-market debt issue. History suggests the impact of a financial crisis on oil consumption occurs approximately twelve months after the crisis. This means the oil-market effects of the current currency problems will begin appearing in the data in late spring 2019.
  • The IMO 2020: When it rains, it pours. Several developments regarding the International Maritime Organization marine fuel sulfur rule have occurred since we last focused on the regulation. Last week, Goldman Sachs issued a long report on IMO 2020. It is one of the best analyses provided so far but for its failure to address the issue of diesel fuel prices. Meanwhile, Mexico and China are proposing new regulations and measures that, when combined, will increase global demand for low-sulfur diesel as much as three hundred fifty thousand barrels per day beginning in 2020. This is not what the market needs. Hence, the heading “when it rains, it pours.”
  • A Venezuela invasion? In January, Ricardo Hausmann, a former government official in Venezuela and now a researcher at Harvard University, called for the Organization of American States to raise a military force and then invade Venezuela to restore stability. The idea was not embraced. Since then, the huge number of refugees escaping Venezuela to neighboring countries has created a humanitarian crisis of immense proportions. In response, the discussions of forming an OAS invasion force have been revived. The US ambassador to the United Nations publicly brought up the possibility on September 13. While the timing is unclear, it appears likely that the current Venezuelan government will be replaced before the end of the year. The impact on the country’s oil output is uncertain.
  • Gasoline consumption: Prices matter. Gasoline consumption continues to be depressed by high prices. The impact is clear. Price elasticities are around -0.1 in the US and the developed world and larger (meaning more negative) elsewhere. In the US, larger marketers such as Casey’s General Stores, Marathon, Murphy USA, and others will see lower sales. The tax cut and economic growth will not boost gasoline use.
  • Recession in 2020? Nouriel Roubini earned his reputation ten years ago by projecting the 2008 financial collapse. He recently listed ten factors that could cause a 2020 recession and financial collapse. The IMO 2020 regulation is not included. His warning merits consideration.


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