HOUSTON (ICIS)--Many US-listed shares of chemical companies rose sharply on Thursday after crude futures rallied on news that Saudi Arabia and Russia could reach an agreement on reducing oil production.
US President Donald Trump said the two countries could agree to cut oil production by 10m-15m bbl, although he did not specify the time frame.
In 2019, Saudi Arabia and Russia produced a combined 23.82m bbl/day of crude, according to the Energy Information Administration (EIA). If Trump was referring to daily production cuts, then the reduction would be unprecedented.
Brent futures for June delivery closed at $29.94/bbl, up by $5.20/bbl.
Oil prices are important to the chemical industry because prices for chemicals and plastics tend to follow them with a six-month lag, according to the ICIS Petrochemical Index (IPEX). The index tracks 12 major petrochemicals and polymers.
For US chemical producers, lower oil prices can shrink their margins because they rely overwhelmingly on ethane and other natural gas liquids (NGLs) as feedstock. Much of the world relies on oil-based naphtha.
US producers lose their cost advantage when naphtha prices fall in relation to ethane. Thus, a rally in oil prices could benefit US chemical producers.
The table below shows the major stock indices followed by ICIS.
|Dow Jones Industrial Average||21,413.44||469.93||2.24|
|Dow Jones US Chemicals Index||441.48||6.31||1.45|
|S&P 500 Chemicals Industry Index||445.62||6.99||1.59|
Oil markets are being battered by the lapse of a production-cut agreement between OPEC and Russia as well as falling demand caused by the coronavirus (Covid-19).
The disease continues to spread, as shown in the following tables.
Source: US Centers for Disease Control and Prevention (CDC)
Source: World Health Organization (WHO)
The restrictions imposed to limit the spread of the disease are slowing down the US economy.
For the week ending on 28 March, jobless claims reached 6.65m, an increase from 3.34m from the previous week, according to the US Department of Labor.
The latest jobless figure was a record, the department said.
Among US chemicals, US March ethylene contracts settled at an 18-year low.
US tyremaker Goodyear will extend the temporary suspension of operations at all Americas manufacturing plants until further notice.
In Brazil, BR Distribuidora became the second ethanol distributor to declare force majeure on purchases of the fuel because of low consumption.
In Europe, chemical prices remain weak as manufacturing activity across the region has decreased sharply due to quarantines in most countries to contain the coronavirus pandemic.
In Asia, petrochemical share prices were mixed while regional stock indices were mostly lower.
The table below shows the US-listed chemical stocks followed by ICIS.
|$ Change||% Change|
|Axalta Coating Systems||16.38||0.11||0.68|
Focus article by Al Greenwood
Additional reporting by Michael Sims, Renato Frimm, Amanda Hay, Jonathan Lopez and Nurluqman Suratman
Visit the ICIS coronavirus topic page for analysis of the impact on chemical markets and links to latest news.