Tougher Than The Rest – Disruptions Support US Propylene, Oil Price Weakness Favors Lower Global Chemical Prices

Daily Chemical Reaction

Tougher Than The Rest – Disruptions Support US Propylene, Oil Price Weakness Favors Lower Global Chemical Prices

Key Points:

• Global crude oil price weakness will expedite chemical price declines and likely curb early 2024 forecasts, putting regional buyers of products in limited supply due to disruptions in a tough spot.
• We discuss 2H23 US propylene market strength amid continued production issues, which have pushed domestic prices above Europe and Asia, cutting non-integrated buyer competitiveness.
• Brent crude fell ~3.5% to below US$75/bbl, and US natural gas fell ~4.5% today, suggesting the production cost curve favors US chemical producers, but global prices face downward pressure.
• We discuss the ExxonMobil business update, more takeaways from COP28 and impracticalities facing calls for a phasing out of fossil fuels, and EU CO2 prices falling to a new YTD low this week.
• Negative macroeconomic data points and evidence of falling prices are increasing confidence that gov’t interest rate hikes are over, but conditions could notably worsen before they improve.

Exhibit #1: US spot PGP commands a premium above its 10-year average compared to ethylene and is likely to stay at an elevated relative level, especially if PDH production issues persist.

Source: Bloomberg, C-MACC Analysis, December 2023

See PDF below for all charts, tables and diagrams