Weekly Thematic

$20 Crude and its Implications for Chemicals
March 8, 2020
Companies Mentioned:
Most Likely None
Commodities Mentioned:
Subjects Covered:
Commodity Chemicals, Plastics, Paints, Industrial Gases, Specialty Chemicals, Midstream, Refining, E&P, Cost Curves, Trade, Shutdowns, M&A

A Multiclient Offering From C-MACC

$20 Crude and its Implications for Chemicals

With the breakdown of the OPEC meeting this week there is concern that crude oil prices could fall dramatically from what are already 4-year lows.  The supply/demand dynamics of the chemical industry are today very dependent on the cost differential between crude oil derived feedstocks and natural gas derived feedstocks.  A flattening of the cost curve could cause a chaotic reshaping of trade flows – especially if combined with a COVID-19 driven step down in demand in 2020.   Our goal is to produce something useful, quickly and cost effectively

C-MACC is proposing a multiclient look at the possible scenarios that could evolve as a consequence of a sharp fall in oil prices and prolonged period of lower oil.  Contents would include:

  • Approximate cost curves for ethylene under a number of possible crude/natural gas and ethylene co-product scenarios. All focused on the current direction of the curve – below – which we published in a recent daily.
  • We will also address whether the cost curve is an appropriate tool and look at some of the “alternative value” curves that might be more relevant to decision making – see our recent Scenarios Piece for more on this.
  • We will draw conclusions at the industry level, sub-industry, regional and class of producer level but will not draw specific company conclusions unless we see cases of potential insolvency – but these are more likely to be company groupings.
  • We will also offer broad strategic alternatives for companies in different regions and with different trade and feedstock dependencies.
  • We will work through a couple of different demand scenarios – one of which considers a sharp drop in 1H 2020 followed by a quick recovery – which seems to be current consensus, and a second which reflects more permanent damage to consumer sentiment.

Table of Contents

  1. Setting a base line – what the industry expectations were in early 2020
    • Demand
    • Raw Material Expectations
    • Cost Curve Dynamics
    • Trade Flows
  2. What does today look like – despite all of the noise
    • Demand
    • Raw Material Expectations
    • Cost Curve Dynamics
    • Inventory Shifts
    • Trade Flows
  3. $20 crude
    • The possible cost curves – accounting for
      • Relative feedstocks
      • Relative ethylene co-product credits etc
    • Demand
      • COVID-19 Implications
      • Stimulus from possible lower oil
      • Inventory
      • Trade Flow
      • Operating rates by region driving
      • Pricing and margins by regions
      • Where production cuts will come
  4.  Risks
      • To feedstock forecasts: e.g. what happens if E&P activity in the US stops?
      • Predatory behavior, by a region or company.
      • Government subsidies – changing the shape of the curve
      • The risk to cash flows and dividends for public companies
      • Insolvency
  5. Strategy
      • Where to invest – what to avoid
      • Corporate actions – what sort of companies can exploit the volatility and what companies will fall victim

The work will be data driven and scenario assumptions will be provided in the report

Note that we are at the planning stages with this report and we will happily take input from prospective buyers.


With enough initial support (this week) we would expect to have this piece finished and delivered by March 23rd – if it takes us a full week to get enough support to go ahead the report will be ready a week later.


The generic report will be free to C-MACC clients.  The price for non-clients is $5,000 for those signing up before March 15th.  After March 15th the price will be $7,500.

In addition, once we have published and distributed the report we will customize the research on a bespoke basis for any company that would like the tailored view – the base price for this additional work would be a further $5000 (client or non-client), but prices would be negotiated on a case by case basis if companies wanted further analysis – perhaps of competitors, or of their own strategy on an “over the wall basis”.   

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