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Prices of Petrochemicals Decline due to Falling Oil Prices

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Published on : Feb 17, 2015

As per the IHS, apart from destocking of the petrochemical supply chain because of declining oil prices globally, the declining oil prices have in a strange way paved the way for economic improvements. It is anticipated that the low prices of petrochemicals will give a major boost to the overall demand for petrochemicals. These trends in the long run are expected to tighten the conditions prevailing in the global market today. 

Dave Witte, a senior official at IHS Chemical expressed that falling oil prices can lead to lower prices of the final products because oil is an integral part of the marginal cost and also determines the prices of important products such as fibers, chemicals, and plastics. Also, the wide macroeconomic advantages and declining prices have the capacity to ultimately fuel the derivative demand for petrochemical. 

Furthermore, it is observed that a certain margin is derived by most assets from a broad differential of gas to oil. These are mostly observed in regions of the Middle East and North America. Several projects that are capital intensive are already in the pipeline in these regions that face a certain cost advantage as against the other regions all across the globe. However, several business analysts expect that upcoming business plans may get dampened since chemical sector producers may be awaiting a forward clarity for easing of market volatility. Ethylene happens to be the most widely traded petrochemical. Apart from this, ethylene is highly market indicative, and has a major impact on the markets for synthetic fibers, downstream chemicals, and plastics. There is a direct relationship between the price of oil and the prices of the final products.