Major US chem shares rise after attack on Saudi oil

HOUSTON (ICIS)–Shares of several US chemical producers rose on Monday following drone attacks on an oil plant in Saudi Arabia.

The drone strikes on 14 September hit the Khurais oilfield and Abqaiq, the world’s largest crude processing plant, responsible for most of the nation’s Arab Extra Light and Arab Light. The attack marked the largest ever single disruption to oil supplies, cutting 5.7m bbl/day.

An oil facility at Khurais Oil Field in Saudi Arabia – 23 June 2008 (Photo by Ali Haider/EPA/Shutterstock)

Saudi Arabia is expected to recover a third of that production capacity early this week.

Global oil benchmark Brent soared close to 20% on Monday and hit $71.95/bbl for November delivery before retreating to consolidate on either side of $67bbl.

James Ray,  ICIS vice president of Americas Consulting, compared the attacks to previous disruptions to the oil market.

“It is worth noting that the 2014/2015 oil price crash resulted after an extended period of over-producing by 2% more than demand,” he said. “So a 5+% loss of global daily oil production is significant, especially if it is a prolonged disruption.

“How high this will drive oil prices is yet to be seen,” Ray said. “While higher oil prices increase the US shale oil and associated gas advantage globally, passing on price increases is always a challenge and can reduce seller margins, while higher prices can dampen consumer demand.”

All three of the major US stock indices fell in morning trading. Share prices for European chemical companies also declined.

However, shares of some of the biggest producers in North America traded higher, with Methanex rising by more than 7%.

US chemical stocks rose because the country’s plants benefit from higher oil prices.

Several US companies built new ethane crackers and downstream polyethylene (PE) plants to take advantage of all the natural gas liquids (NGLs) being produced by the nation’s oil and gas fields.

These plants have an advantage against those in much of the world, which rely overwhelmingly on oil-based naphtha.

These plants become more profitable when oil prices increase.

The rise in ethane cracking should help insulate US markets of heavier olefins like propylene and butadiene (BD) from the effects of the drone attacks.

The cumulative effect of all the new US crackers has caused domestic production of both of these products to increase.

Companies have also built propane dehydrogenation (PDH) units, which use propane to produce propylene.

The cost advantage of US producers extends beyond olefins. Rising US production of natural gas has benefited methanol and ammonia companies, which rely on methane as a feedstock.

The following table lists the morning performance of major US chemical companies.

Name	$ Current Price	$ Change	% Change
Methanex Corp	39.04	2.8	7.73
Westlake Chemical Corp	68.46	2.56	3.88
LyondellBasell Industries NV	87.78	1.51	1.75
CF Industries Holdings Inc	50.67	0.76	1.52
The Mosaic Co	22.88	0.23	1.02
Olin Corp	19.01	0.18	0.93
Huntsman Corp	23.65	0.19	0.79
Dow Inc	48.41	0.21	0.44
Trinseo SA	44.41	0.13	0.29

Unlike petrochemical stocks, US refiners fell sharply on Monday.

Refineries are important domestic sources of aromatics because US crackers rely so heavily on ethane and other gas feedstock. Light feedstocks produce relatively small amounts of aromatics.

PBF Energy was down by nearly 10%. Valero Energy fell by almost 6%. Phillips 66 was up slightly, although it is a partner in the petrochemical joint venture Chevron Phillips Chemical.

US refineries along the Gulf Coast were built to process heavier crudes. As a result, they are not optimally designed to process all of the light oil being produced in the shale fields of the US. The country’s refineries still need imports of heavier crude.

Those on the East Coast are even more reliant on oil imports because US shipping regulations discourage tanker deliveries between coastal states.

Depending on how long the Saudi facilities remain offline, US refiners that cover sour crude requirements through term purchases of Arabian oil will have to scramble and pay a premium to ensure supplies.

The following graphic shows the effects that the drone strikes could have on Saudi Arabia.

Focus article by Al Greenwood

Additional reporting by Ignacio Sotolongo, Richard Price and Tom Brown