US Dow expects oil to be tight next year

Source: ICIS News

2018/11/07

HOUSTON (ICIS)--Global oil markets should be tight next year before softening somewhat in 2020, an executive with DowDuPont said on Wednesday.

"Across the next six to nine months, you are going to see it pretty firm," said Jack Broodo, business president of what will be the Feedstocks and Energy unit of Dow Chemical once it is spun off from DowDuPont.

Broodo made his comments during Dow's investor-day presentation.

Part of this forecast is based on Dow's expectation that OPEC's spare capacity will decline, as shown in the following chart.

(1) Source: Energy Aspecs and Dow.

US oil production should rise, but it is facing its own bottlenecks, Broodo said. These constraints can be anything from pipelines to gas takeaway.

In one case, it's actually dock space, Broodo said. In the next six to nine months, companies should complete pipelines that will ship oil from the Permian basin in western Texas to the port in Corpus Christi, Texas.

By the time these pipelines are finished, it is unclear whether Corpus Christi will have the waterborne loading capacity for the oil, because the dock schedules are behind, Broodo said.

These midstream constraints in the US should ease in 2019, he said. By 2020, the oil market should soften, and OPEC may act to prop up prices.

Oil prices are important to the US petrochemical industry because it affects their profit margins. The US relies predominantly on gas-based feedstock, while much of the world relies on oil-based raw materials.

As a result, US companies can gain a cost advantage when oil prices are high. Their margins shrink when oil prices fall.