“There must be some way out of here….”

Business, China, Company Strategy, Economics, Middle East


….said the joker to the thief..Ben Bernanke has brought cheer to the world by claiming that inflationary pressures are easing as a result of the fall oil and other commodity prices.

I suppose any good news in the current climate is better than another kick in the teeth, but the big questions are: how far can crude fall and what’s the long-term price of oil that can be afforded chemical producers with no access to advantaged feedstock?

Some of the froth has been taken out of the speculation in commodities as a result of the stronger dollar and a fall in demand for the filthy black stuff in the West. For example, Goldman Sachs estimates that developed countries will use 500,000 fewer barrels a day this year than in 2007.

But emerging market demand will grow by 1.3m barrels a day in 2008 with a 5% increase in consumption in China, the same bank adds. This has led Goldman Sachs to conclude that crude prices will rebound to $149/bbl by the end of the year.

Demand destruction in the West might be occurring. For example, the US could have as many as 12 million fewer motorists by 2015 as those earning $25,000 a year or less get by on one rather than two cars per family.

But for every American that is forced to make do with only one set of wheels there will be hundreds of people in developing countries earning enough to buy their first car.

On a global basis it’s therefore more accurate to talk about demand relocation rather than demand destruction.

During the heady days of 2006 everybody in the chemicals industry was making money, even those who are seriously feedstock-impaired. Profitability remained strong for the better-integrated liquids-based producers up until Q4 of last year.

The last couple of quarters have been so dismal that it’s understandable that the recent fall in crude has raised expectations the worst might be over.

But you will be hard-pressed to find many energy experts willing to take a punt on prices returning to their levels of a couple of years.

The fundamentals of tight supply haven’t changed over the last few weeks as oil prices have retreated – just as much of developing world demand growth will more than compensate for less consumptiion in West.

Rising capital costs mean a lack of sufficient investment in new supply.

Whether or not you believe that Peak Oil is upon is almost irrelevant for the next few years because the lack of investment – also the result of increased resource nationalism – means that the reserves that do exist are not being adequately tapped.

And the irony of the slightly lower oil prices of the last few weeks is that exploiting tar sands and other marginal oil reserves, which require very high capital costs and great technical skills, will seem less attractive. Perhaps this is what the Middle East wants…..

If you don’t an advantaged feedstock, either through a position in the Middle East and/or being very smart at refinery/petrochemical integration, you’ve got big problems.

Maybe there is no way out of here….


The danger of bogus science


climate change, IPCC, New Scientist, Peak Oil, oil-supply crisis, oil prices, oc...

Learn more

Liveris gets liverish on energy


Andrew Liveris, Dow Chemical, Donald Rumsfeld, Dick Cheney, corn-based ethanol, ...

Learn more
More posts
Global polyethylene oversupply, the highest in 19 years, hasn’t gone away

By John Richardson BRENT crude futures surged by 80% during the second quarter and enjoyed their bes...

China could be in complete polypropylene self-sufficiency by 2022

By John Richardson SORRY to labour the point but this comes from a genuine concern for the readers o...

Asian polyethylene price recovery faces multiple challenges

By John Richardson THERE are reports of significant cuts in Middle East polyethylene (PE) operating ...

China’s long-term ambition for paraxylene self-sufficiency seems close to being realised

On Friday, I examined how China’s paraxylene (PX) net imports could fall to as little 8m tonne...

China’s big declines in 2020 PX and PP imports: the impact on its major trading partners

By John Richardson CHINA’S refineries and petrochemicals plants came roaring back to almost fu...

Paraxylene demand collapses as higher China production threatens 6m tonne fall in imports

By John Richardson DON’T SAY I didn’t tell you that a decline in stock markets would happen. The...

Coronavirus will severely damage the developing world unless we take the right steps

By John Richardson IT IS a fantastic achievement. “Over the last 25 years, more than a billion peo...

Main Street versus Wall Street and the crisis in the developing world

By John Richardson RISING equity and oil markets do not necessarily point to a V-shaped recovery. I ...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more

Uncover exclusive industry upates from ICIS

Interested to uncover more articles related to this topic? Explore additional news, insights and intelligence, tailored to the markets you are interested in by accessing exclusive content from ICIS.com