Skip to main content

Responses to lower oil prices

Hydrocarbon Engineering,


Fitch Ratings

The ability of the US fuels market to respond to lower oil prices is expected to be capped over the long term due to fuel market regulations meant to limit domestic demand for conventional refined fuels, according to Fitch Ratings. These measures include rising renewable fuel requirements under the Energy Independence and Security Act (EISA) of 2007, which mandate the use of increasing amounts of renewable fuel sales through 2022; higher Corporate Average Fuel Economy standards, which will gradually raise the fuel efficiency of the US passenger cars and light trucks to 2025 regardless of fuel price; and the regulation of greenhouse gases at both the state and federal level, which is expected to add costs for refined domestic refined product, particularly, gasoline.

The dramatic decline in North American oil prices has led to sharply lower prices at the pump, and has begun to result in increased demand in the US. WTI fell approximately 45% in US$ terms, from US$107/bbl this past summer to less than US$55/bbl at the beginning of the new year. According to the EIA, total weekly gasoline consumption as of the end of December rose above its five year high and stood at approximately 9.5 million bpd, up approximately 3.3% above the five year high range and approximately 3.7% above year earlier levels.

The limited ability of the US to rebalance global oil markets through changes in demand suggests that the oil market will likely require a more significant adjustment on the supply side to recover from its recent lows. This dovetails with Fitch’s view that the recent drop in oil prices is mostly a supply driven issue that will require a significant supply response to come back into balance.

Huntsman

Huntsman Corporation’s President and CEO, Peter R. Huntsman has issued a statement in response to inquiries regarding the business impact of lower prices oil.

“In an environment where oil prices are sustainably low, Huntsman Corporation will emphatically be a beneficiary over the long term. Many of our raw materials are derived from the oil refining process. We expect our margins to improve as the cost of our raw materials decrease. We also expect a meaningful working capital release which will help strengthen our balance sheet. Lower priced oil should provide more discretionary spending for consumers; approximately one third of our business is consumer oriented. We have a number of growth projects underway; I expect our business to improve throughout 2015.”


Edited from press releases by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/refining/07012015/responding-to-low-oil-prices/


 

Embed article link: (copy the HTML code below):