Market futures are looking murkey

Don’t let the recent shock waves in the economy fool you we still haven’t figured out what the markets will do in 2016.
A drop in oil prices normally heralds a period of economic growth and the reasons are fairly obvious. We need oil literally greases the mechanisms of production. Lower fuel costs mean lower production costs, which in turn mean, theoretically, lower prices for consumers. As prices drop people buy more, which puts more money in the pockets of the people producing allowing them to either raise wages employ more staff. Either way it means more money being pumped into the economy which is good for everyone.
There is a problem though. When oil prices have dropped previously it has been due to an excess of supply, the more of something there is the lower its prices. This time round, however, it appears that the drop in prices is due more to a drop in demand. Oil just isn’t the commodity it once was. Not necessarily a bad thing, it does mean that people are paying attention to renewables more after all which is, hopefully, good for the environment.
For the markets though it poses a serious risk. Oil has been a strong base for many investors and the thought that it could collapse is putting the frighteners on more than one. Economists don’t like uncertainty and that is exactly what they are facing.
Coupling this with recent developments in China and the markets for 2016 are looking as though they are likely to be in for a rocky time. This has been evidenced this week by the drop in the Shanghai index, due in no small part to the drop in the price of oil.
These developments have not come out of the aether however. China’s rapid expansion and construction boom has longed looked like a bubble set to burst. What keeps it stable though is the influence of the government over the whole situation. Should the growth of industry, without the supporting infrastructure, we have seen in China have been attempted by America or Europe then it would be a dramatically different story. As it is the Chinese government is likely to impose measures to prevent the spiralling decent of its economy. It won’t be pretty but it may just be enough to stave off collapse.
The issue of oil prices however is one which may not have such a hopeful future. Large swathes of the global economy are built on high oil prices, whether directly or indirectly, in some cases without it being evident to the industries themselves until it is too late. A curtailment of supply may help to drive prices up slightly, however, it would be an illusionary fix which defeats the object. Investors know the oil is available it is just a matter of them waiting until they can access it.
For now the future is uncertain and likely to remain that way. The loss of revenue from oil is likely to create further instability in the Middle East and create a domino effect of devaluation. As the main beneficiaries of oil wealth withdraw their support from other enterprises the economy as a whole will feel the pinch.
Whether we like it or not oil is still the life blood of market enterprise and right now the markets need a transfusion.