War in the Middle East could drain commercially owned crude oil stocks in industrialized countries within 9 months, leading to global recession.
Also, sustained high crude oil prices are likely to cause severe disruptions in chemical markets during 1991-93, warns Bonner & Moore Associates Inc.
The Houston firm predicts a recession in late 1991 will cause demand to dip for many chemicals, with falling operating rates applying strong pressure on margins. In addition, war in the Middle East will boost crude oil prices to $40/bbl through third quarter 1991, after which slumping demand will pressure prices toward $30/bbl by 1993.
In the event of a stalemate in the Middle East followed by a peaceful solution late in 1991, Bonner & Moore says, crude prices will fall from the mid-$30s late this year as new supplies come on line. From about mid-1991 through 1993, crude prices will fall to $25-27/bbl.
MIDDLE EAST SCENARIOS
In Bonner & Moore's worst case war scenario, disruptions to crude supplies will force wellhead prices up rapidly. In an effort to maintain price stability, member countries of the Organization for Economic Cooperation and Development will begin drawing on crude stocks.
At first, a 2 million b/d drawdown of commercial stocks will be needed for 3 months to stabilize prices before other supplies become available. Then draws of about 400,000 b/d will be needed for another 6 months before surpluses are exhausted.
Once crude inventories are depleted, high oil prices will cause a significant slide in economic activity.
By comparison, stalemate will allow additional crude to enter world markets, and there will be a perception that still more crude is available. That will depress prices by about 25% during second half 1991 and lead to higher margins for refiners.
In Bonner & Moore's stalemate scenario, benzene, toluene, and xylene (BTX) prices peak in mid-1991 before falling gradually to preinvasion levels by 1993.
High crude prices will cause polymer grade propylene prices to peak at about 28/lb in mid-1991, followed from late 1991 through 1993 by a gradual fall to 22-24/lb.
With moderate crude oil pricing, BTX prices will peak in late 1990, declining by 20% by mid-1991, and polymer grade propylene will peak at 22/lb in late 1990 before failing to 19-21/lb by mid-1991.
CHEMICAL DEMAND
High crude oil prices in Bonner & Moore's war scenario ripple through the economies of all countries, shrinking demand for a wide range of petrochemical products.
A recession will cause demand for major polymer resins to fall by 3-5% in 1991, squeezing operating margins.
Demand for other basic chemicals is expected to fall 2-10% during 1991.
Bonner & Moore expects an economic recovery in 1993.
Demand for basic chemicals will follow the course set by major polymers. Bonner & Moore predicts xylene and benzene demand especially will soften, while demand for propylene will hold up.
A naphtha shortage of 170,000 b/d centered in Japan, Korea, and Taiwan will continue through 1990, resulting in healthy shipments of chemicals and derivatives into the region.
New supplies and a drop in demand will bring naphtha markets back into balance by mid-1991.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
