On-ground coverage of the Middle East markets



Volatile crude to weigh on Saudi polymer trades throughout 2015

02 March 2015 | Fadhil Muhamad, Middle East Correspondent, ICIS | Jeddah, Saudi Arabia

Overall trades in Saudi Arabia’s polymer market will likely be limited throughout the year, with buyers wary of taking positions in periods of highly volatile crude prices, industry sources said on Monday. Buyers are expected to adjust to “new habits of hand-to-mouth buying”, said a source close to a Saudi-based polymer producer. “Crude oil prices are no longer going to be stable for a sustained period of time. Volatility is the new normal,” according to a source close to a Saudi-based petrochemical producer. Brent crude had steadily fallen for seven months from June 2014 that shaved its value by more than 60%, hitting a six-year low of $45.19/bbl on 13 January 2015, largely on concerns over a global supply glut. By end-February, however, Brent crude has recovered almost 38% of its value, registering its biggest gain in a month since 2009 due to supply disruptions in the US, Libya and Iraq. At midday, Brent crude for April delivery was trading at $62.24/bbl.

Despite recent recovery, crude prices are expected to stay low for the whole of 2015 amid oversupply concerns and continued weakness in the global economy. “During the downtrend in 2014, buyers [of polymers] kept only minimal inventories. They adjusted well to need-based buying patterns,” the industry source said. But more than the resulting weakness of polymer spot prices, market players are worried about the frequency and wild fluctuations in the crude market that forces them to have an increasingly short-term view of the polymer market, industry sources said. “Our company can no longer plan our procurement beyond one or two months,” a Saudi-based polymer buyer said. Petrochemical traders, however, see opportunity in a highly volatile market. “Oil prices will pick up at some point. We are able to make more money now by buying cheap and selling expensive. Storage … [is] also not so costly,” a petrochemical trader based in Dubai said.

Global oil markets are becoming “hyper-sensitive to any production news or inventory data”, triggering short-term spurts or lulls in buying and selling activity, a separate Dubai-based distributor said. “We need stability this year. We are happy if oil prices move within a tight range,” said a source close to a Saudi polypropylene (PP) producer. Oil cartel OPEC, which accounts for 30% of global supply, plays a key role in keeping the crude market volatile by refusing to cut production at a time of waning global demand. Last week, Nigeria raised the idea of an emergency OPEC meeting to discuss production cuts but the proposal was met with stiff opposition from Gulf states, which prefer oil prices to be dictated by market forces. It remains unclear when and if the emergency OPEC meeting will take place. The 12-member energy cartel is not due to meet until June this year to discuss production rates and oil prices.

Saudi Arabia, which is the most influential member of OPEC, has repeatedly maintained its “no cut” policy in crude production. For Saudi Arabia, it is a game of keeping its sizeable share of the market, with the emergence of the US as a major crude exporter amid booming domestic shale oil and gas production, industry sources said. In February, the Energy Information Administration (EIA) of the US expects global oil inventories to continue to build in 2015, limiting upward pressure on oil prices because of declining drilling activity. EIA forecasts Brent crude to average $58/bbl in 2015.

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