By John Richardson

ONE of the biggest risks for petrochemicals producers has once again become oil prices as we enter a period of weaker demand and longer supply versus the potential for a major geopolitical disruption to supply.

Crude prices could easily rise to more than $100/bbl on a geopolitical clash between the US and say Iran or China.  today’s market direction may continue with prices giving up all of their 28% gains  from November of last year to October 2018. Perhaps prices will fall by even more.

What is clear, whatever the outcome, is that the business as usual assumption of steady crude prices has to be challenged – and seems to me unlikely.

You must prepare for both a major upside and downside shift in oil prices and what this would mean for your approach to feedstock purchases and the pricing of your finished products.

Here’s the case for a continued collapse in crude:

  • John Kemp, in this thoughtful Reuters story, talks of crude reaching a cyclical peak in October 2018. He looks at the history of previous upswings and concludes that October could mark the point when supply gets ahead of demand.
  • The same Reuters author says that hedge fund managers were net sellers of petroleum-linked futures (gasoline and well as crude) for a fifth week running up until the last week of October. Net long positions were at a 15-month low at the end of October.
  •  As the world enters recession, a further sell-off in financial and commodity markets seems very possible, along with demand destruction of crude as economic growth declines.
  • The US decision to grant six month waivers to eight countries that import Iranian crude suggests that new US sanctions again Iran will have less a negative impact on supply than many people had thought. Behind the waivers appears to be White House concern over the harmful impact of high oil prices on economic growth.
    Two scenarios for LLDPE prices.

The business as usual approach to oil prices assumes that they stay at a Brent average of $73/bbl in November 2018-October 2019 in the 12 months from November 2018 until October 2019.

The chart on the left assumes the implications for CFR Japan naphtha costs and CFR China LLDPE prices of this business as usual approach.  Compare this with the chart on the right that assumes what would happen if crude gave up all of its 28% gains during November 2018-October 2017.

PE and PP price forecast reports
My Chinese colleagues and I are the authors of our monthly Asia PE and PP price forecast reports.

Let’s be honest, if any of us could forecast oil and petchems prices with great accurately, then we would be sitting on a beach in the Bahamas admiring our 200-foot yacht.

What we do aim for, though, is reading market direction correctly through making numerous calls to our contacts in China, Southeast Asia – and also in Europe and the US as polyolefins markets are of course global. Understanding market sentiment is as important, if not more important, than any spreadsheet.

And as the example above illustrates, our reports include different scenarios for PE and PP prices, with all the Excel data behind our assumptions available to clients.

For more details on the reports, please contact me a john.richardson@icis.com

PREVIOUS POST

Negative Asian polyolefins margins show need for recession planning

05/11/2018

ASIAN PE and PP spreads turned negative in October this year for the first time ...

Learn more
NEXT POST

Big jump in China PE imports points to destocking as demand prospects weaken

12/11/2018

By John Richardson CHINA’S official PE imports and exports are finally out for...

Learn more
More posts
China’s policy dilemma: raising local demand while protecting exports
13/09/2020

  By John Richardson IN THIS Western-centric world, a huge amount of ink is split over the cons...

Read
China’s polyethylene demand good so far in 2020 but beware of risks ahead
10/09/2020

Note that all the comparisons in this post are on a year-on-year basis unless otherwise stated By Jo...

Read
Ah, I see: China’s booming demand mystery a little closer to being solved
08/09/2020

  Note that all the data comparisons below are on a year-on-year basis By John Richardson THE P...

Read
The China polyester mystery continues in a world turned upside down
07/09/2020

By John Richardson SOMETHING very strange is happening in China’s polyester industry which has eno...

Read
China will struggle to boost local retail sales during rest of 2020 with export outlook uncertain
04/09/2020

By John Richardson IF IT were easy, then there would be an oversupply of owners of large yachts in M...

Read
Pandemic and the developing world: No quick and easy solutions
01/09/2020

By John Richardson POVERTY alleviation in low-income developing countries could be set back a decade...

Read
The pandemic and petrochemicals demand: a whole new approach is required
30/08/2020

By John Richardson MONITORING demand has never been harder because of the pandemic. One of my collea...

Read
China’s limited policy options to help lower-paid workers make 2020 retail sales recovery unlikely
25/08/2020

All the data comparisons below are on a year-on-year basis By John Richardson AS I’VE been flaggin...

Read

Market Intelligence

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

Learn more

Analytics

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