Petrochemical markets in Middle East flustered by OPEC decision to maintain production

01-Dec-14

OPEC’s decision not to cut production from level of 30 mln bpd for the coming six months provides no relief to crude futures, whose free-fall is dragging down values of most commodities. US crude futures slumped to below US$70/bbl, while Brent was trading at US$72.80/bbl. As per ICIS, polymer prices in the Middle East may continue on their downtrend. OPEC’s decision is expected to lead to a renewed period of volatility in the upstream and downstream markets in the Middle East, industry players said. Polymer buyers expect at least a US$80/ton decline in new December offers for polyethylene (PE) and polypropylene (PP). The offers are due to be announced next week. “We expect more cuts to polymer prices. Nobody will buy a single tonne more than necessary now,” a Middle East PE trader said. Over the past three months, high density PE (HDPE) film prices fell by 2.53%, while PP flat yarn prices declined by 3.5% in the Gulf Cooperation Council (GCC) region, according to ICIS data. Suppliers had earlier held back announcing their new polymer offers for December until after the OPEC meeting last week. “There is a lot of uncertainty now in both the crude and petchem markets,” according to a Middle East trader. Dubai-based traders said they are unsure when petrochemical prices will bottom out. Buyers in the Middle East said they will likely purchase petrochemicals on a hand-to-mouth basis due to price uncertainty. Global crude production has grown significantly in recent years because of a surge on shale oil supply from the US, while demand from Asia and Europe has started to weaken. The OPEC countries are capable of withstanding longer period of low oil prices given their large foreign exchange. Lower oil prices will make the US’ shale oil projects uncompetitive due to high production costs. US refiners need crude to remain around US$70/bbl to break even.