FocusCrude falls below $50/bbl on recession fears

21 November 2008 07:14  [Source: ICIS news]

By Pearl Bantillo

 

SINGAPORE (ICIS news)--Fears of a deep and prolonged recession kept crude values at three-year lows on Friday after breaking $50/bbl (€40/bbl) overnight, with analysts predicting further declines, boding ill for the petrochemical markets.

 

“We are in the grip of recessionary worry,” said Song Seng Wun, regional economist at Malaysian brokerage CIMB-GK.

 

“Nobody knows how deep or how long (the recession would last), which big companies or which countries may get swallowed up in this unfolding mess,” said Song.

 

At 05:00 GMT, light sweet crude futures for December delivery was trading at $49.10/bbl while January ICE Brent crude futures was at $48.00/bbl.

 

Asian petrochemical spot prices also reacted to the fall in crude futures prices, dashing hopes of a possible recovery in the near term, market sources said.

 

Asian spot propylene crashed over $100/tonne to $350/tonne CFR China on Friday as panicking traders offloaded stocks intended for December arrival.

 

The Chinese domestic market was also under heavy pressure with propylene prices down a whopping yuan (CNY) 1000/tonne

($146.20/€116.96/tonne) in the space of a few days to CNY 4,400/tonne via pipeline, traders said.

 

Buying sentiment for polymers in the Middle East was also hit, traders and converters said.

 

“Trade has been very sluggish this week, as buyers are waiting for crude prices to stabilise. Even those who are expressing some interest are asking for only a couple of containers in anticipation of a further fall in prices if crude continues to slip,” said a Tehran-based polymer trader.

 

Although PP markets appeared to have bottomed in India, with some slight pick up in prices seen this week, the continued fall in crude values suggests any rebound would be temporary. “We may see prices fall again in December or January,” said an Indian polypropylene (PP) converter.

 

Crude prices continued to fall despite efforts from the Organization of Petroleum Exporting Countries (OPEC) to rein in supply through production cuts.

 

“I don’t think anybody can tell you with certainty where the bottom of the oil prices would be. It is possible for oil to go lower in the near-term because concerns for demand dominate the markets at the moment,” said David Moore, commodity strategist at Commonwealth of Australia.

 

“The oil outlook is very uncertain. The other factor is the US dollar itself - it has affected the valuation of oil prices,” said Moore.

 

The growing pile of bad news on industrial economies of Germany, Italy and Japan plunging into recession was prompting investors to rush out of commodity markets and turn to bond markets in search for safe havens, boosting the US dollar.

 

OPEC may again slash output in December to support oil prices, said CBA’s Moore, but there are doubts this move would change the direction of crude values.

 

($1= €0.80)

($1=CNY6.84)

 

(Steve Tan and Prema Viswanathan contributed to this article)

 

To discuss issues facing the chemical industry go to ICIS connect

 

By: Pearl Bantillo
+65 6780 4359

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly