Oil prices are undoubtedly one of the fundamental factors influencing the construction industry, especially the heavy equipment market. The price change relies heavily on the market supply-demand relationship which is likely to be negatively affected by the current market environment.
To analyze the overall excavator market in the United States, we need to forecast the future of the market by combining economic factors and market environment trends.
On July 09, 2021, The U.S. Energy Information Administration revealed that the average oil price forecast for 2021 has risen to $68.78/barrel, an increase of $3.59/barrel compared to the June STEO. However, global oil production is expected to rise sharply in the coming months and will exceed global oil consumption. In other words, the oil prices are expected to be stable or even on a downward trend in 2022.
It seems like a piece of good news for all the construction companies. Because lower oil prices cut costs for construction machinery owners, but only from a short-term perspective. In the long run, more companies will take the chance to enter the market when the oil price is relatively lower. Therefore, the oil price will eventually go up due to the demand growth. The equipment purchase business will also be booming in the short run because the price drop adds potential value, such as low maintenance costs and high work efficiency (more work can be done with lower oil consumption) to the equipment in the short term.
However, as COVID-19 is still underway, the global market has some unexpected risks. Even though COVID is well controlled in the U.S., some other countries like India and Australia are still facing some extent of uncertainty. If the COVID breaks out again, all construction machines need to be shut down. More seriously, international construction companies may be forced to face political issues. In this case, the oil demand will be negatively impacted by the market environment. So, how to determine the stability of the construction market during the pandemic? Here are some tips.
- The country’s overall vaccination rate
- COVID cases in the last three months
- Weather
- Countries relationships
- Country general purchasing power (GPP)
To sum up, if there is no significant deviation in the forecast for oil prices and production is expected, it is time to make an investment in the construction market in a safe environment where the COVID-19 outbreak is well contained.
