Why are oil prices crashing?
Oil prices have suffered their biggest fall since the day in 1991 when American forces launched air strikes on Iraqi troops following their invasion of Kuwait.Monday's crash spooked markets that were already freaking out about the impact of the coronavirus pandemic on the global economy and demand for oil. Brent crude futures, the global oil benchmark, were down 22%, last trading at $35.45 per barrel. US oil is trading at $33.15 per barrel, a decline of nearly 20%.
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China’s oil reserves to be boosted
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U.S. Considers Intervention in Oil War
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The Impact on other countries
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“It is a good opportunity. China’s reserves are far below the 90-day usage amount, the standard in the United States. It has room to increase.”MORE -
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Administration officers are exploring a diplomatic push to get the Saudis to chop oil manufacturing and threats of sanctions on Russia geared toward stabilizing costs, after U.S. oil corporations pressed them to intercede, folks accustomed to the matter stated.MORE -
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The recent oil price plunge will have an impact on Latin America’s largest oil-producing economies, including Mexico, Ecuador, Venezuela, Colombia and Brazil, by affecting their public coffers and their capacity to continue producing oil and gas.MORE
The oil-price decline since 2020 has been a major shock to the global chemical industry. Many producers were underprepared for both the magnitude and speed of the impact on their businesses. The changing nature of oil supply and demand is expected to exacerbate volatility and increase the likelihood of oil-price shocks.
Chemical companies need to develop the organizational agility to prepare for impending shocks and take rapid action when they occur, to capture value and minimize threats. The total output of major chemical products in China increased by 4.6 percent in 2020. Among them, ethylene production reached 20.523 million tons, up 9.4% year on year. 1.618 million tons of pure benzene, down 2.1% year on year; 49.363 million tons of methanol, up by 0.4% year on year. Coating 24.388 million tons, up 2.6% year on year; 23.607 million tons of chemical reagents, up 12.0% year on year; Sulfuric acid 89.357 million tons, up 1.2% year on year; 34.644 million tons of caustic soda, up 0.5% year on year; 28.877 million tons of soda ash, up 7.6% year on year; Synthetic resin 9.5744 million tons, up 9.3% year on year.
- Cost Structure
- Price-Setting Mechanisms
- Demand Patterns
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Crude oil is a major cost driver in the petrochemical industry, because many of the key chemical building blocks (for example, aromatics, ethylene, and propylene) for the industry’s products are directly produced from oil or its derivatives (for instance, naphtha and liquefied petroleum gas). In addition, some chemicals, such as chlorine, are produced through highly energy-intensive manufacturing routes and have a strong link to oil prices. Changes in oil prices have an immediate and significant impact on the cost structures of these chemicals. -
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For most commodity chemicals, the production costs of the marginal producer are the principal drivers of market prices. Oil-price shocks affect marginal producers’ production economics and, therefore, commodity-chemical price levels. These price changes, in turn, impact specialty-chemical producers downstream, which typically use commodity chemicals as inputs, though the extent of the impact is less and with a significant time lag (Exhibit 3). In addition, the price changes can enable some downstream chemical producers to find substitution opportunities as the relative prices of certain chemical intermediates change (for example, the price of polypropylene could fall below high-density polyethylene during an oil-price decline). -
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Abrupt changes in oil prices may change spending patterns for individual consumers, who see their disposable incomes expand or contract. In the medium term, the new oil-price environment begins to inform consumers’ and companies’ investment decisions (such as buying a house or building a plant). As oil prices decline, initial spending focuses on consumables (for example, food). If lower oil prices persist, investment in durables and then fixed assets ramps up, along with associated spending on chemicals used to make the durables and fixed assets. Of course, if oil prices go back up, the opposite occurs.
·Strategic ·Managerial ·Functional
A chemical company’s ability to quickly determine the right direction to take in the face of a rapidly changing environment is built on four pillars:Monitor oil-price shocks. Companies must monitor oil-price indicators and embrace exceptional analytical capabilities to be alert to impending oil shocks as soon as possible.Analyze portfolio exposure. Optimize risk.
Managerial agility refers to the pace at which leaders can rapidly shift the focus of their organizations and align on new priorities. The best companies have installed mechanisms:Assemble a senior, cross-functional decision-making team. In highly volatile environments, decisions must be made much more quickly and at higher levels than in business-as-usual periods.Reallocate resources to critical functions.
Functional capabilities are put to the test during major shocks, since standard processes designed for steady market developments no longer work. Strong functional agility requires companies to do the following:Identify value and develop action plans，communicate actions to the front line，implement rigorous tactical execution，and never lose sight of operational excellence.
