Over the past 18 months, the main investment analysts have argued that high oil prices would have no impact on the global economy. Now, new forecasts suggest their optimism has been misplaced.
The chart above gives the International Energy Agency's latest forecast of likely oil demand growth this year:
• It has been reduced by a further 0.3mbd since January
• Total 2012 oil demand growth is forecast to be just 0.8mbd
• Global economic growth is now forecast at just 3.3%, down from 4%
Sustained high oil prices are indeed reducing economic growth, and oil demand itself, just as they have done every time in the past.
Even the idea that China would "inevitably" see strong demand growth has proved wishful thinking. The IEA forecasts just a 0.4mbd increase in China's oil demand this year. And even that may turn out to be over-optimistic, given the clear slowdown now underway.
As the blog has long feared, the chemical industry will now have to pick up the pieces, after the damage has been done:
• Today's oil and feedstock price levels mean that working capital costs are very high compared to historical levels. This reduces the cash available for product and market development.
• They also increase market volatility. The lack of inventory means small changes in demand can cause major swings in market prices, if producers or consumers have to cover supply chain problems.
• Even more critically, as we are seeing with the Petroplus refinery bankruptcy, there is a real risk of supply disruptions for feedstocks and raw materials, if key plants can no longer afford to operate.
Product price changes since the 29 April peak, with ICIS pricing comments, are below:
HDPE USA export (purple), down 14%. "US spot export prices are still too high for large quantities to be sold in many markets"
PTA China (red), down 10%. "Buying activity slowed down clearly as compared with last week because the persistently weak downstream polyester sales curtailed buying interest"
Naphtha Europe (brown dash), down 7%. The Petroplus bankruptcy led traders to build inventory in anticipation of "stronger demand from both the gasoline blending sector and petrochemical end-users"
Brent crude oil (blue dash), down 6%
Benzene NWE (green), down 4%. "Price ideas edged up in line with stronger US and Asia numbers as well as steady-to-firm energy costs"
S&P 500 Index (pink dot), down 2%