The Doha Oil Meeting: Were You Ahead Of The Curve?

Business, China, Company Strategy, Economics, Environment, Middle East, Naphtha & other feedstocks, Oil & Gas, US

CgPmMcaW4AANBrhBy John Richardson

IT WAS tremendous whilst it lasted for the hedge funds and will have enabled them to make a lot of money – the ones who, of course, had the good sense to switch from long to short positions ahead of yesterday’s failed Doha meeting.

Chemicals companies with a decent planning department should be in a similar position to savvy hedge fund managers this morning. These type of companies will have anticipated that  the meeting in Doha between some OPEC members and Russia could well have gone nowhere.  They will, as a result, have told their raw material purchasing managers “Don’t overextend yourself ahead of this meeting, as there is a very good chance that oil, and so naphtha etc. will see some sharp price declines.” This kind of decent planning comes from a recognition that the oil world has changed – I believe for good.

Putting these changes into the context of the Doha meeting. Saudi Arabia was never to sign up to even a production freeze, never mind a production cut, unless Iran also agreed.

Iran was never going to agree because in this new, post sanctions world, it has to regain lost economic ground.  Iran will thus go headlong for market share as volume matters more than price. And because of its geopolitical rivalry with Saudi Arabia, this is another reason to doubt why Iran would have been interested in being part of a deal. I also suspect that Iran understands that a production freeze, never mind a production cut, would ultimately have been futile anyway.

What is of critical importance to understand it that Saudi Arabia has for a long time recognised this. Saudi Arabia knows that:

  • When it last led the way in cutting output back in the 1980s, we were at the beginning of another secular, long term decline in oil markets because other producers continued to pump hard. So all that happened was that the Kingdom last market share with prices still falling.
  • As Mark Twain said, “history doesn’t repeat itself, but it does rhyme”. Back in the 1980s there were, of course, no US shale oil producers. But today, the US shale oil industry would have responded to a price rally resulting from an OPEC freeze or cut by upping its production. This would have then sent prices back down again.
  • In statement after statement, both private and public, Saudi Arabia has made it clear that it sees a long term decline in demand growth for oil, and so it does not want to see its most valuable national asset left in the ground – in the same way that everyone already knows coal will be left in the ground.
  • The Kingdom, as Deputy Crown Prince Mohammed bin Salman has made clear, is using today’s decline in oil markets to its advantage as it tries to accelerate economic diversification away from an over-reliance on crude exports. So think about it: A rebound in oil prices, based on a production freeze or cut, would have set this agenda back. And any such rebound would, for reasons I have already described, only be temporary. So Saudi Arabia would have lost more valuable time in its drive to achieve economic diversification with no major gain from greater revenues.

As I said, good chemicals company planning departments will have been ready for today’s oil-price retreat on the news that there has been no deal in Doha. They will be equally prepared for a lot more short – and long term – volatility in oil prices as the world adjusts to today’s New Normal. 

Good short term planning will have taken into account more downside potential for oil from the end of the US driving season after the 4 July holiday, and what is always a weak Q3 ahead of restocking for the northern hemisphere winter.

As for long term planning, smart chemicals companies will be with Saudi Arabia in recognising that we have moved beyond peak demand growth for oil for two reasons.

Firstly, last year’s COP21 agreement  underlines that for environmental reasons, there is no turning back from the shift to doing “more with less” from hydrocarbons in general.

And secondly, as we detail in our study – Demand: The New Direction for Profit – the economic Supercycle is over. Demographics in the West, and in China, could result in an extended era of weak and volatile oil prices.


Beware Of Oil-Price Rally: Nothing To Do With Fundamentals


By John Richardson PEOPLE are once again at risk of dangerously over-exposing th...

Learn more

European Polyolefins: Rebuilding The Bridges


  By John Richardson SHOULD any petrochemicals value chain be a zero-sum ga...

Learn more
More posts
China ethylene glycols and paraxylene: new 2021-2031 import scenarios as self-sufficiency threat increases

By John Richardson WHEN I WAS a boy in 1970s Britain, a new pair of shoes was an expensive propositi...

Iran may gain 48% of total China HDPE imports, 85% of LDPE imports by 2025 because of new deal

By John Richardson IRAN and China earlier this month signed a wide-ranging economic and security agr...

China early data points to 42% fall in 2021 HDPE imports

By John Richardson China’s high-density polyethylene (HDPE) imports in 2021 look as if they might ...

China early data point to PP imports collapsing by 78% this year with SM 67% lower

By John Richardson CHINA’S apparent demand for polyethylene, polypropylene (PP), styrene monomer (...

China’s environmental policies: scenarios essential for impact on local and global petrochemicals

By John Richardson WE MUST develop very nuanced, broad ranging and constantly updated scenarios abou...

Worsening semiconductor shortages highlight need for new approach to demand

By John Richardson PETROCHEMICAL companies need to set up demand teams that focus on all the new sho...

China petrochemicals and the lack of logical basis for the 2021 boom theory

    By John Richardson IF YOU DO a Google search, you will find a lot of articles on China...

Seeing through the lack of data: new scenarios for global LLDPE demand in 2021-2025

By John Richardson WE DON’T HAVE THE DATA sets nor the data tools to work out what is going to hap...


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