chemical market and its dependency on crude prices
Chemical market which directly depend on crude oil prices going in upward direction Oil futures firmed on Friday(10-12-2016), consolidating gains ahead of a weekend meeting of major oil-producing countries for a deal to cut production.
U.S. crude futures rose 66 cents, or 1.3%, to $51.50 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 36 cents, or 0.67%, to $54.25 a barrel on London’s ICE Futures Exchange.
Oil prices surged ( due to which lots of hope came in chemical market) above $50 a barrel last week after the Organization of the Petroleum Exporting Countries committed to a 1.2 million barrel a day cut, equivalent to around 1% of global output. Traders and analysts are now awaiting the outcome of a meeting between OPEC members and oil producers from outside the cartel, including Russia.
OPEC is hoping to get big producers outside the cartel to cut a further 600,000 barrels a day. Russia has indicated it will take on half that burden.
(Chemicals prices showed upward movements as soon as crude oil went up which makes chemical market turn into stability.)
Analysts are hopeful that Russia will stick to that target at Saturday’s meeting.
“We believe a status quo outcome that keeps the November deal intact is the most probable scenario and hinges on a repeated commitment from Russia,” Macquarie analysts wrote in a research note Friday. “A Russian exit would be a deal breaker, yet we view this as a low probability.”
Due to strong crude future chemical suppliers started keeping inventory to get good profit margin hence chemical market growth rate expected to high in coming months
But others warned that as production has declined in many countries, including Mexico, over the past two years due to investment cutbacks, it could be challenging to secure additional cuts.
“I have my doubts on whether they are willing to do that and then the market might be disappointed,” said Hans Van Cleef, senior energy economist at ABN AMRO.
(In chemical and petrochemical sectors crude prices perform major role chemical market can only be stable when crude prices stable.)
ABN AMRO forecasts Brent crude will average $55 a barrel in 2017.
Energy consultancy JBC said that it would be difficult to differentiate between cut agreements and natural decline rates already expected for.
“In short, we do not expect the outcome of this meeting to play a significant role in rebalancing the oil market,” said JBC in a note to clients.
(Dow chemical, Sinopec, MEGlobal and major chemical manufacturers increase their plant operating rates of all their manufactured chemicals, which will give positive response to chemical market.)
Analysts are also skeptical about whether OPEC members will adhere to production quotas and will keenly eye first-quarter production numbers for evidence of cuts. At the same time, U.S. shale producers are expected to ramp up output, taking advantage of the recent rise in prices and offsetting any cuts from the recent deal.
(Chemical market growth rate was assessed at 9.27% in 2015-16 but analysts now assuming that growth rate will go beyond 11% in 2016-17.)
The number of oil rigs drilling in the U.S. has been steadily increasing since early summer.
Gasoline futures rose 0.14 cents, or 0.09%, to $1.5447 a gallon. Diesel futures rose 0.62 cents, or 0.38%, to $1.6321 a gallon.
(Source-chemicals market analysis)