INTERACTIVE: AFPM ’19: US HCl market awaits signs that oil prices will recover

HOUSTON (ICIS)–The US hydrochloric acid (HCl) market has watched prices soften as oilfield activity adjusts to lower oil prices.

But new signs of tightened supply in global oil markets is prompting optimism that the recent downturn in drilling activity will reverse as exploration companies glean greater returns.

That is the dread and optimism in that market as participants head to this year’s International Petrochemical Conference (IPC).

The slump in oil prices has increased HCl supplier competition in the oilfield as the number of rigs working in US fields have declined from 1,080 in early December to 1,026 in the week ended 15 March.

Exploration and production companies have negotiated lower supply prices for acid delivered to operating rigs.

That has prompted some suppliers to renegotiate lower prices from producers.

Meanwhile, it appears that on-purpose acid burners are running harder, sending domestic supply longer as demand slows.

Some of the larger oilfield service companies are running 20 or more crews for hydraulic fracturing, or fracking.

HCl is used to clear out limestone and other debris and to widen fissures before the violent pumping of water to pound cracks in shale formations to liberate oil and natural gas.

But the number of rigs working has declined, and US HCl prices lowered by about $25-30/wet ton for many oilfield users during the late fourth quarter and through January, according to market participants.

The decline in oilfield demand and resulting rise in supply may have trickled over to contracted buyers of acid in other industries.

Annual contracts for industrial users of HCl for 2019 had entailed price increase initiatives late in the year when discussions opened. However, they eased back to rollovers for 2019.

Still the number of drilled by uncompleted wells has grown to more than 8,000 in the US. A return of oil prices to levels of $65/bbl and higher could set off a rush to complete those wells, sending demand for acid sharply higher.

“If oil prices recover at anything faster than a crawl, we should see some firming of demand and pressure on prices to rise during the second or third quarter,” said a US distributor.

Much of the optimism for strengthening oil prices is based on the belief that OPEC will not allow prices to languish and instead adjust production output to help firm global markets.

“We know that oil is coming back,” an acid producer said. “I just do not know when.”

Major US HCl producers include BASF, Olin, Occidental Chemical, Westlake Chemical, Chemours, Covestroand Formosa Plastics.

Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC takes place on 24-26 March in San Antonio, Texas.

Focus article by Bill Bowen