Oil Price Rally Hits Plastics

The crude oil price rally has hit plastic producers’ margins, and some are starting to curb production, Bloomberg has reported.

Brent crude briefly topped $130 this month amid the war in Ukraine, with Western sanctions severely reducing international flows of Russian oil. Despite retreating some, the benchmark, along with the rest of the oil benchmarks, are at historic highs, sparking fears of recession and attempts to mitigate the effect of the sanctions on the global economy.

As normally happens when oil prices are high, petrochemicals producers tend to suffer. According to the Bloomberg report, several Asian petrochemical companies had cut processing rates to 80 percent, per information from traders working with them. Such facilities, called crackers, normally run at close to 100 percent of capacity, the report noted.

As a result, any industry that uses plastics may soon feel the pinch, according to the sources Bloomberg spoke to. The blow may be made all the more severe by the fact that the margins at petrochemical crackers were already depressed even before the Ukraine war.

Plastics are not the only products that are going to be more expensive, either. Because of the increase in oil prices, thousands of products will see higher input costs that normally lead to higher prices for the final product, including anything from consumer electronics to synthetic clothing.

“Petroleum is at the root of so many different products, from makeup to plastic bags to fertilizer,” Patrick DeHaan, the head of petroleum analysis at GasBuddy, told NBC. “You can’t escape the use of oil.”

“A lot of plastics are made with polypropylene or polyethylene, and the basic building blocks of those are propane and ethane,” said CFRA Research energy equity analyst Stewart Glickman.

Higher oil prices will also lead to more expensive food: the agricultural sector is very energy-intensive, and the costlier the energy, the costlier the output, the NBC report also noted.

By Irina Slav for Oilprice.com

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