Stored Oil Could Mean Continued Low Prices

With OPEC estimating output to increase by 400,000 barrels per day this year and non-OPEC supplies likely to rise by twice that, the glut of world oil supply does not look to clear up any time soon. The fact that world oil storage is approaching capacity, rising by 265 million barrels last year, has only increased the likelihood of continued low oil prices. Baker Hughes reported the rig count in America in mid-February fell to its lowest since 2011, and 35% below its peak in October of last year, but many of these rigs were in marginal areas while the main shale-oil basins saw a 9% decline. Add into this the increased productivity of remaining wells and projected flat demand for the first half of this year and there is little reason to believe oil prices will rise based on supply and demand economics. What does this all mean for the chemical industry? Lower oil prices may lead to increased spending in the overall economy, increasing oil importing countries’ GDP, which in turn should help chemical manufacturers and those who depend on chemicals in their manufacturing process. Those in the plastics industry should see an additional benefit of lower cost raw materials. The one industry that may see hard times ahead are those selling into the oil industry. If prices continue to stay low, we may continue to see a reduction in capital devoted to oil exploration and acquisition.