Since the beginning of 2004, prices of oil and
its derivatives have been spiking upwards. Oil prices have been
hovering around 13 year highs causing a cascading effect on prices
of polymer feedstocks. We keep getting the queries from our readers
whether the prices of polymers would ever go down in 2004 - Not
likely seems to be our first reaction.
The global economy is turning around and is expected to show a
robust growth of 3.5%-4%. In fact, since the last two quarters of
2003, major world economies; USA and Japan have turned positive,
Europe seems to be flatter. Asia as expected is leading the growth.
It is not surprising that 2/3rd of the growth for 2004 would be
derived from the Asian region. The two major drivers for the Asian
region; China and India are expected to continue the growth in 2004
at approximately the same levels as 2003.
Further non-willingness of OPEC to increase crude oil production
would add fuel to the fire. The OPEC region is not expected to generate
more oil because it is more expensive to dig out more oil. The price
of oil that had crossed US$37/barrel is not likely to show softening
below US$30/barrel. The other non-OPEC oil producing countries may
not be able to generate significantly higher levels of oil. Most
of the pundits believe that oil price may not remain at US$35-37
level but may not go down below US$32 and probably touch a nadir
of US$30/barrel. The chart below clearly illustrates that OPEC region
cannot produce more than 7-8% of the 28 million bpdarrels /day.
OPEC PRODUCTION AND QUOTA ---------
All figures are in millions of barrels per day
|
Country |
March 2004 Quota |
February 2004 Production |
Production vs. Quota |
Output Capacity |
Potential Additions |
Saudi Arabia |
7.963 |
8.45 |
106.1% |
10.2 |
1.75 |
Iran |
3.597 |
3.95 |
109.8% |
4.05 |
0.1 |
UAE |
2.138 |
2.29 |
107.1% |
2.35 |
0.06 |
Kuwait |
1.966 |
2.25 |
114.4% |
2.31 |
0.06 |
Qatar |
0.635 |
0.76 |
119.7% |
0.76 |
0 |
Nigeria |
2.018 |
2.33 |
115.5% |
2.35 |
0.02 |
Libya |
1.312 |
1.48 |
112.8% |
1.48 |
0 |
Algeria |
0.782 |
1.15 |
147.1% |
1.15 |
0 |
Venezuela |
2.819 |
2.558 |
90.7% |
2.65 |
0.092 |
Indonesia |
1.27 |
0.97 |
76.4% |
1.05 |
0.08 |
Total |
24.5 |
26.188 |
106.9% |
28.35 |
2.162 |
(Source: International Energy Agency, OPEC, Merrill
Lynch )
There is a possibility that Iraq could add some sizable generating
capacity. Some respite could also come from non- OPEC countries
like Russia, Norway, etc. but that may not be adequate.
Will the price go still higher? Most likely not. The experts believe
that US$37-38 would be the highest price unless some unforeseen
circumstances like a large-scale war.Assuming the price range of
oil remains between US$30-37, the derivatives prices that essentially
influence the prices of polymers would remain higher and in the
same range that we have witnessed in 2003-2004 so far.
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