Demand declines as Federal Reserve fuels oil price rise

Consumer demand


D'turn 24Feb12.pngThe Wall Street Journal carried an interesting opinion piece on Friday, assessing current market conditions from the viewpoint of the film character, Forrest Gump. Gump’s key insight is that “Stupid is as stupid does”. Thus the Journal noted:

“Oil staged its last price surge along with other commodity prices when the Fed revved up its second burst of “quantitative easing” (QE) in 2010-2011. Prices stabilized when QE2 ended. But in recent months the Fed has again signaled its commitment to near-zero interest rates first through 2013, and recently through 2014. Commodity prices, including oil, have since begun another surge.” And it went on to add:

“Fed officials….want to take credit for easy money if stock-market and housing prices rise, but then deny any responsibility if commodity prices rise too, causing food and energy prices to soar for consumers. They can’t have it both ways, as not-so-stupid Americans intuitively understand when they buy groceries or gas. This is the double-edged sword of an economic recovery “built to last” on easy money rather than on sound fiscal and regulatory policies.”

ICIS’ Truong Mellor sums up the consequences as far as petchem markets are concerned when he notes with regard to benzene that:

“The push and pull of opposing factors – the upstream bullishness versus the slower end-use demand as well as the sense that the market is currently overheated – is also adding to the confusion.”

Europe and the USA are not the only regions where the Fed’s QE policies are destroying demand. China has record retail prices for gasoline and diesel, and ICIS reported a polyester producer commenting this week:

“General demand is not recovering as well as expected. We are at a very difficult position now: sales are slipping while inventory are increasing”.

All the key sentiment indicators are telling us that financial markets are at a cross-roads. The critical number is 1370 on the US S&P 500. This was the peak of the last rally, and coincided with the blog’s launch of its Downturn Alert on 2 May. Friday’s close was 1366. A rise above 1370 would also mark a recovery to market levels not seen since June 2008.

The chart shows product price changes since then, with ICIS pricing comments below. It shows how stock and oil markets continue to move together, whilst downstream markets have proved increasingly unable to pass through the higher prices due to demand destruction:

HDPE USA export (purple), down 11%. “PE prices were stable in Asia, amid weak demand and high feedstock costs”
PTA China (red), down 11%. “Mounting polyester inventories have restricted the purchasing power of polyester makers in the physical and futures markets”
Benzene NWE (green), down 5%. “Sentiment has softened this week with lower demand from the phenol and cumene sectors.”
Naphtha Europe (brown dash), down 4%. “Reduced supply, resulting from refinery maintenance and shutdowns, is easily able to meet soft demand”
Brent crude oil (blue dash), down 2%
S&P 500 Index (pink dot), no change


Oil prices hit the top of their triangle


Oil prices are poised at a critical point. As the chart shows, the recent rally ...

Learn more

5 Risks to China's growth story


China’s economic growth has become more and more unbalanced over the past ...

Learn more
More posts
China’s plastic ban and recycling launch marks end of ‘business as usual’ for plastics industry

Paradigm shifts start slowly at first, and it is easy to miss them. But then one day, they suddenly ...

Automakers face stiff headwinds in big emerging markets

Brazil, Russia, India and China disappoint as manufacturers face investment demands of EVs © Bloomb...

Portugal shows the way to climate neutrality by 2050

“If you don’t know where you are going, any road will do”. The Irish proverb’...

The next billion phone users will be buying $10 smart feature phones, not $1000 iPhones

Smartphone sales plateaued in Q3, down 9% since Q3 2017’s peak of 1.55bn, as the chart shows....

Companies ignore the Perennials 55+ generation at their peril

Nearly a third of the the world’s High Income population are now in the Perennials 55+ generat...

Auto markets set for major disruption as Electric Vehicle sales reach tipping point

Major disruption is starting to occur in the world’s largest manufacturing industry.  Hundred...

Smartphone sales continue their decline, whilst $25 smart feature phones open up new markets

Global smartphone sales have now been falling for 8 consecutive quarters, since Q3 2017. They are no...

Smartphone market decline begins to impact global stock markets

The bad news continues for the world’s smartphone manufacturers and their suppliers.  And Pre...


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