Despite the market focus on an oil supply surplus, demand side pressures are also hurting prices, as world trade growth slows, a top HSBC economist said on Thursday.
"You have a situation where emerging markets in general are extremely weak, that in turn is causing commodity prices to decline rapidly, including oil prices, so rather than saying lower oil prices are a stimulus for the commodity consuming parts of the world, I think you should see lower oil prices as a symptom of weakness in global demand," HSBC's senior economic advisor Stephen King told CNBC.
The 19-month plunge in oil has mostly been blamed on the Saudi Arabia-led OPEC policy of keeping production high even in the face of global oversupply, in an attempt push out higher production-cost rivals such as U.S. shale oil producers.
But King said that the forces moving oil were more nuanced than that. "If it's a situation where it's a reflection of weaker global demand, you get lower oil prices and at the same time, much weaker low trade growth," King said.
"If it were simply a supply-side beneficial shock, then you get lower oil prices, higher real incomes in the west, maybe higher world trade growth. So it's not just the fall in the oil prices itself but world trade growth which is extremely weak - both of which is symptomatic of this broad deflationary trend."
King did not give a forecast for oil prices but warned of a broader economic fallout from low prices, even amid a U.S. automotive sales upswing on the back of a knock-on slide in the price of gasoline.
"Investment in various parts of the world has been much, much weaker than expected. Exports are a lot weaker than expected. More importantly, around the world, there has been very, very high level of debt," he said.
"The problem with very low inflation or deflation, (when) interest rates are already at zero, the more the inflation falls, the higher your debt level becomes, the more difficult it is to deleverage and you end up with with grinding constraint on the ability of the global economy to expand."
While official (and nominal) policy rates are at record lows, deflation risks pushing up real interest rates, crimping the ability of borrowers to meet their debt commitments and weighing on economic growth.