The oil price crash and what it means for the petrochemical industry

Why have oil prices collapsed?

The interaction between oil prices, supply and demand is notoriously eccentric. None of the three can be relied upon to respond smoothly to changes in the other two. Demand is inelastic: price rises make little difference to motorists’ habit of using their cars. Supply is inelastic: long lead times and giant investment costs mean both that new supply can be slow in arriving, and the shutoff of uneconomic supply can be slow.

Meanwhile, prices respond not to reality, but to perceptions of reality: they rise because there might be a shortage of oil, not because there actually is one. And they fall only when perceptions change.

Supply-demand factors

Arguably, the drop in benchmark Brent crude prices from a peak of some $114/bbl in July this year to below $70/bbl today was well overdue.

Oil demand in the western world and Japan has been stagnant or falling since the financial crisis of 2009 kicked in. Not only is economic growth flat, but technological advancement and the switch to alternative fuels are steadily eroding oil demand - in particular the demand for automotive fuel in the West.

For complete access to the full article, including supply and demand factors, the macroeconomic origins of the price crash, the future outlook of oil prices and more, simply fill out the short form below.

Download the full article today

All fields are required

Hello ! (Not you?)


Your Data Privacy
By completing this enquiry form you indicate your consent for us to email you information about selected products, events and services from ICIS and from carefully chosen third parties unless you object to receiving such messages by ticking the boxes below.