Crude oil to return to historical levels, China demand to slow down – consultant

VIENNA (ICIS)–The return of oil and energy prices back to historical average levels in recent years will have a significant future impact on petrochemical pricing, a senior industry player said on Wednesday.

Opening the 9th ICIS Phenol and Acetone conference, David Hughes, senior vice president at petrochemical consultancy International eChem, highlighted three scenarios for global oil pricing in the future:

*$25/bbl: driven by collapsing demand
*$50/bbl: a ‘comfortable middle’ supported by successful stimulus packages
*$100/bbl: driven by geopolitical risk, supply constraints and rising tensions

“Oil and energy is the baseline for everything we do,” Hughes added. “It underpins the petrochemical industry.”

While the market is currently around that ‘comfortable middle’ level just below $50/bbl, Hughes anticipates that oil prices will revert back to the historical average of around $35/bbl in the future.

This will be driven by a drop in Chinese demand as the country rebalances its economy and moves towards self-sufficiency. The growth in lending from 2008-2013 from $10,000bn to $28,000bn only had a comparatively minimal impact on GDP, and is not seen as sustainable.

Hughes noted that the global petrochemical industry has been reliant on Chinese growth in recent years, citing benzene and propylene growth in particular, but expects this to subside in the coming years.

He also saw the growing productivity among US shale producers as adding further downward pressure on oil and energy prices, noting that while oil rig counts have dropped, the impact on overall inventories has been less pronounced.

The shifting demographics in the global market will also play a pivotal role in future petrochemical demand. Hughes highlighted the fact that the over-55 population is the fastest growing segment, and said that this will have “profound implications for the future of demand.”

The pressures of the ageing population demographic have been more intensified in China, Hughes noted, with the impact of the one child policy.

The ICIS Phenol-Acetone conference runs from 15-16 June, 2016.