According to IHS, while the effect of the escalating unrest in Egypt is obvious at the petrol pump, the crisis could potentially have a less obvious impact on the cost of countless everyday consumer products that are derivatives of crude oil. This could then in turn potentially impede the US economic recovery.
Impact on petrochemicals
Petrochemicals derived from oil are used to manufacture a huge array of products taken for granted in the modern world and encompasses many things from pharmaceuticals, to plastic bottles, to bin liners. The unrest in Egypt has already driven up pricing of oil and some associated petrochemicals. And based on the analysis of historical trends, a sustained increase in oil costs could result in a surge in petrochemical expenses, inflating prices for a slew of items.
History alone shows that a sustained inflation in oil prices can have a rippling effect upon the cost of petrochemicals. In 2008 when oil prices remained above US$ 100 /bbl from April – September, ethylene prices rose in tandem. The average price for ethylene, a widely used petrochemical product, climbed to 79 cents /lb in July 2008, up 26% from 63 cents in February of 2008. From March to May of 2011, when oil prices rose above the US$ 100 /bbl level, ethylene prices increased by 18%.
In July of this year, oil prices again rose above the US$ 100 /bbl level reaching an average of US$ 104.70 /bbl, and it won’t stop there. During this month, they are expected to rise to US$ 106.67 before easing back as the end of summer driving season reduces seasonal demand. Yet, if the civil unrest in Egypt continues or gets worse, oil prices could remain high and drive up the cost of ethylene and other base petrochemicals within 30 – 60 days.
‘If oil remains above the century mark for much longer, prices for all kinds of common products made using petrochemicals can start to rise as well,’ said Howard Rappaport, senior director, chemicals, IHS Supply Chain Pricing & Purchasing. ‘Combined with the growing cost of energy, a petrochemical price surge could delay and/or slow the recovery in the US economy as the cost to produce many household products becomes more expensive. This economy drag would come at an inopportune time, just as manufacturers are gearing up production to meet expected holiday demand in the third and fourth quarters.’
Looking beyond ethylene, pricing for other key petrochemicals are affected by high oil prices, including benzene, styrene, propylene and butadiene. The supply chain for these material spans from crude oil producers, to petrochemical manufacturers, to derivatives manufacturers, to finished goods, to retail outlets, to consumers. These petrochemicals serve as the intermediate building blocks for numerous plastics and other chemical derivatives.
‘With such large, globally diverse supply chains covering many regions, industries and manufacturing processes, disruptions that cause availability interruptions or price spikes can have unexpected impacts on various industries and business processes,’ Rappaport said. ‘Events like the ongoing Egyptian unrest or the June fire at the Williams Geismar chemical plant in Louisiana, or a hurricane in the US Gulf Coast can occur at any time. In such crises, the companies that survive and thrive will be the ones that have the best supply chain management, as well as a superior understanding and awareness of how world events can affect each node of their business. Such knowledge can give companies the capability to predict the impact of problems, mitigate risks, and maintain resilience in the face of crises.’
The current events in Egypt are illustrating how global events can have unforeseen impacts on petrochemical supply chains. Although Egypt is not a major oil producer or exporter, the unrest in the nation is indirectly impacting energy and petrochemical prices globally. Instability in a key country or region can have an unforeseen and lasting impact on oil prices and futures trading. The unrest in Egypt has the potential to cause wider scale upheaval in the Middle East, including countries that are major oil producers.
Reacting to the increased risk in the region, energy traders are already driving up their prices. The potential upwelling comes at the time when petrochemicals are in high demand for use in consumer electronics products, such as plastic enclosures for televisions, smart phones and media tablets as well as automotive parts, packaging and a host of other goods.
Adapted from press release by Claira Lloyd.
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/20082013/egypt_crisis_impact_crude_product_prices576/