Commentary: Chemical players seek crude oil bottom

Crude oil has been on a wild swing – mostly to the downside. But can it find a bottom and stabilise? Many players certainly hope so.

There’s no question lower oil prices benefit many in the form of low fuel and raw material costs. But sharp and sudden declines, like we’ve seen in past months, disrupt markets and are generally not positive for chemical producers.

Inventory destocking can accelerate as chemical prices decline sharply, although stocks are generally at healthy levels – an after-effect from the financial crisis of 2008-2009 where most were caught holding high inventory.

A sudden collapse in oil prices can also disrupt credit markets – that is the number-one risk in the macro outlook.

A number of oil and gas producers are overleveraged and bankruptcies are a potential risk to debt markets. Sovereign as well as corporate debt dependent on oil could also take a further tumble.

When specialty chemical producers were asked what oil price environment they prefer, most responded with “high and steadily rising”, according to one Wall Street analyst.

A stable oil price, even at “low” levels of around $60/bbl, could go a long way in calming fears.