Oil prices continue to plateau

WTI, S&P Sept09.jpg

Last year, OPEC meetings led to newspaper headlines. But today’s session in Vienna seems to have slipped off the radar. Yet the oil market remains as important as ever to chemical companies.

As the chart shows, the prime driver for oil prices (blue line) is still the financial market. Traders continue to believe recovery is “just around the corner”, but other factors include worries about the strength of the US$ and a desire to own a tangible asset in times of uncertainty.

From an OPEC point of view, though, concerns are mounting:

• OPEC understands that the world economy is fundamentally weak, and that this represents a potential threat to current price levels
• Recent higher prices have led to more cheating on quotas – from a peak of 80% compliance, OPEC are now down to just 68%
Russia has broken ranks completely and is now exporting more oil than Saudi Arabia (7.4mbd versus 7mbd)

In addition, a new ‘joker in the pack’ has appeared with China’s announcement this week , that it supports those companies who face huge losses incurred last year on derivatives contracts when oil prices plunged. China Eastern airline, for example, said in January it faced a loss of $900m on jet fuel contracts, but seemingly now claims the contracts “may be void, invalid or unenforceable”.

The chart suggests that oil prices are now plateauing. Whilst normal winter restocking, and Wall Street’s bullish trend, may hold them at this level, the downward pressures continue to mount.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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