If there’s one constant in energy markets, it’s changed, as prices
shift and corporations adapt. Separately, the chemicals sector
has enjoyed positive growth and margins for the past few years,
so we’ll be watching to ascertain if signs of a slowdown emerged.
Although nobody can truly claim to understand what is going to happen within the next 12 months, it’s useful to undertake to know how the business
the environment might evolve.
In oil markets, the depths of the post-2014 downturn seem to be
behind us. Oil prices have recovered from the $40 2016 annual
average WTI price low. It breached $50 in 2017, and thru
September 2018 it averaged just shy of $67, though many
producers in Canada and therefore the Permian saw lower prices thanks to
widening differentials. This recovery has been a result of various
factors, including the sustained success of the assembly restraint
agreement between OPEC and non-OPEC countries effective since
the beginning of 2017, less oil coming to plug from challenged
producers, and continued strong global oil demand growth
estimated by the Energy Information Administration at about 1.6
million b/d in 2018. These forces together have brought global oil
inventory levels down by quite 175 million barrels since 2016
and buoyed prices.
US Petroleum and Natural Gas
These more positive signals have helped US petroleum and natural
gas liquids (NGL) production enjoy another impressive growth
year, adding an estimated 2 million b/d in 2018, led by the prolific
Permian Basin. Gas as well as a different story, as 2018 prices in
we remained anchored around $3, as plentiful,
low-cost US supply continued to satisfy growing demand in
domestic and export markets.
Upstream capital expenditures haven’t yet recovered
commensurately with prices in 2018 as companies remain
cautious, a minimum of for the nonce. At the instant, there
the focus seems to be more on demonstrating returns rather
then investing in brand spanking new growth.
In the chemicals sector, at this stage of the capital cycle, major
new capacity in base chemicals is predicted to be commissioned
now or within the near future. a neighborhood of risk could also be whether this
might cause lower margins by getting before demand trends.
However, the world could well avoid anything quite a light
downturn by phasing in ramp-ups within the new capacity, selling to
the North American market, which remains as well as quite robust, and taking
advantage of improved US port facilities to export more efficiently
to international markets. So, even with a possible slowing of
emerging market growth, and a shift to more reuse of plastics,
the chemicals sector within us looks reasonably well-shielded from significant downside risk.