The Last Time Oil Was $50/bbl
Then and now: How prices of key petrochemicals in the US behaved the last time crude was $50/b
By Bernardo Fallas | January 18, 2015 04:35 PM
With oil prices at lows not seen in more than 5 1/2 years, the global petrochemical industry finds itself playing memory games as it craves some much-needed guidance regarding price behavior.
Whether you believe past performance is the best indicator of current and future behavior – or the worst – it’s always fun to look back, right?
With that in mind, let’s take a peek at how prices of key petrochemicals in the US behaved in 2009 versus today.
(Disclaimer: The prices we will discuss are not adjusted for inflation and may reflect changes in market dynamics.)
For quick reference, international crude benchmarks closed up on the week for the first time since late November on Friday, but still hovered at levels not seen since April/May of 2009.
ICE March Brent finished the week at $50.17/barrel, while NYMEX February crude closed at $48.69/b. Crude’s now seven-month slide has eroded prices by more than 55%.
Then: Spot hovered in the low 20-cent/lb ($440/mt) free-delivered basis range through May 2009. Keep in mind global prices were coming off jaw-dropping falls in 2008 and were finding their way. In fact, after starting the year at just under 20 cents/lb delivered, ethylene – the main raw material in the production of polyethylene, the most commonly used plastic resin in the world – would go on to fall to as low as the high teens in July before turning the corner.
Now: Prompt-month spot closed Friday, January 16 assessed at 36.75 cents/lb delivered basis, a 51-month low. It might not be quite 2009-level pricing, but spot has come off an impressive 52% since reaching an all-time high just this past September, per Platts data. Contract price levels (38.25 cents/lb) have come off 30% since September of 2014 and are the lowest since August of 2010. This is particularly interesting since natural gas liquids such as ethane, the feedstock of choice for North American ethylene producers, has been decoupled from crude for a while. The dives are driven by factors beyond energy. The market has been talked long on the Texas side, where much of the production, consumption and trading happens, amid logistical constraints with a key pipeline that transports ethylene to Louisiana and despite recent steam cracker outages.
Then: Spot refinery-grade propylene opened May 2009 on rebound mode after falling under 12 cents/lb in December 2008. It began the month in the mid-20s cents/lb delivered and moved into June having hit the low-30s cents/lb. The contract price for polymer-grade propylene, the main raw material for the production of polypropylene, was 31.50 cents/lb. It is worth mentioning that spot PGP trades at roughly a 10-cent/lb premium to RGP.
Now: Spot RGP closed the week assessed at 35 cents/lb delivered, its lowest level since June 2009. Prices have fallen some 53% since early October of last year. The severity of the drop illustrates the strong correlation between crude prices and RGP. Polymer-grade propylene, however, has been slower to register such steep movements, in part because the market is a lot tighter than it was five-plus years ago as steam cracker feedslates have since swung light. While spot PGP has fallen substantially since October, it continues to lag spot RGP, and that has reflected in contract pricing. For example, PGP contracts for January settled at 49.50 cents/lb, down but only 35% on the period.
Then: Prompt-month spot opened 2009 trading below 95 cents/gal ($284/mt) FOB USGC, but went on a furious rally through late July, gaining as much as 450%, thanks in part to aggressive short-covering at the time. Spot opened May at 190 cents/gal and closed at 236 cents/gal.
Now: Prompt-month spot closed the week at 203 cents/gal FOB USGC, rebounding from levels not seen since – you guessed it – May 1, 2009, per Platts data. Imports make up an important portion of benzene consumed in the US. Depressed global prices, supply long and downstream demand weak are keeping pricing anemic. Just remember that, as illustrated by the historical data in 2009, this market tends to rebound strongly.
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