By John Richardson
THE next OPEC meeting – which takes place in Ecuador this Saturday (11 December) – is crucial for petrochemicals for two reasons.
Firstly, the crude market has turned bullish recently as a result of the early onset of winter in Europe and the growing belief that the oil-supply cushion is being reduced.
So if OPEC decides not to pump anymore oil forecasts by certain banks (here we go again, eh?) of higher crude prices next year might appear to be more likely to come true.
Goldman Sachs is predicting average prices of $100/bbl for West Texas Intermediate in 2011 and $110/bbl in 2012.
JP Morgan last week raised its forecast for 2011 Brent average prices by $3/bbl to $95/bbl.
An OPEC decision to maintain quotas – or maybe to increase quotas by an amount that doesn’t satisfy markets – might prompt a surge in buying by some petrochemicals end-users.
This would be on either the anticipation of higher crude, or oil actually moving higher.
If crude does move higher we can guarantee that the Dalian Commodity Exchange’s (DCE) futures contract in linear low-density PE (LLDPE) will move up on Monday. This is provided there is no off-setting further negative economic news emerging from China or anywhere else.
Depending on how the rest of next week plays out, we could then see physical prices of PE and polypropylene (PP) also firming.
This has been a pattern on many occasions this year as end-users have tried to beat higher crude in a min-repeat of 2008 with, to some extent also, the same risks.
The second reason why the OPEC decision needs to be carefully observed is that if quotas are kept where they are now, there will be no extra associated gas available to raise Middle East petrochemical operating rates.
But before polyolefin end-users (back to our comfortable stomping ground!) view this as another reason to stock-up on inventory, they might be well-advised to take into account the compensating impact of more stable production at new plants in the Middle East.
A further positive factor for the converters could be higher operating rates at naphtha crackers, resulting from the push by refiners to maximise diesel production.
By the way: Two major Middle East petrochemical producers told an industry observer – who the blog spoke to late last week – that they don’t that OPEC will raise its quotas.