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A comparison of oil’s reflection on naphtha, ethylene between today and 2016, 2009

by Esra Ersöz -
  • 17/03/2020 (03:52)
Oil prices have been on a downward spiral due to supply glut and virus-hit-demand as both WTI and Brent futures tumbled 30% last week, the worst week since 2008. This week, erosion persists as both futures have come under $30/bbl on Monday’s daily trading.

Oil prices suffered similar decreases in hefty amounts in the past 15 years, albeit not so often.

The previous plunge was witnessed not so long ago in February 2016, when WTI oil futures on NYMEX saw as low as $28/bbl on a weekly average, according to ChemOrbis Price Wizard. This slump was triggered by oversupply at that time, when Iran returned to pump oil globally following the end of sanctions.

The other one was back in late-2008 and early-2009 as a result of the Great Recession, the most severe economic recession in the United States since the Great Depression of the 1930s.

Here is the review of how naphtha and ethylene reacted to the freefall in oil prices now, and back in 2016 and 2008.

Naphtha mirrors crude oil’s plunge on time and size terms

In 2016, crude oil futures saw below $30/bbl after a decrease of 73% in 20 months from the highs of $100/bbl in 2014. Accordingly, naphtha prices gradually followed suit in the same period as they fell to around $300/ton CIF in Asia and even below this threshold in Europe in February 2016.

In late 2008, crude oil was down to around $40/bbl, shedding approximately by 80% in a shorter period of six months. This was mirrored by naphtha as it fell by the same amount to mid-200s in the same timeframe both in Asia and Europe.

Now that crude oil has neared the $30/bbl threshold, spot naphtha prices have followed it lower with Asian naphtha getting closer to $300/ton and European naphtha already breaching this threshold.

That is to say, naphtha prices continue to go hand in hand with crude oil’s movements.

Ethylene reacts to oil, yet it’s not the sole driver in pricing

Analyzing the historical trend of ethylene prices, ChemOrbis Price Wizard suggests that spot ethylene tends to move in tandem with crude oil; however, this movement is not as aligned as in naphtha. This can be attributed to the supply-demand dynamics being more reflective on ethylene pricing. That is to say, the correlation between oil and ethylene is not always straightforward.

In 2016, Asian ethylene’s reaction to crude’s gradual decrease was somewhat limited. Back then, spot prices traded within the range of $850-900/ton CIF China, according to the weekly average from ChemOrbis Price Wizard. However, they were as low as $400/ton in 2009, posting a much larger decrease in response to crude at around $40/bbl.

Today, Asian spot ethylene is at around $640/ton CIF, representing the lowest levels since 2009, standing somewhere between the lows of 2009 and 2016.

In Europe, ChemOrbis Price Wizard demonstrates that the weekly average of spot ethylene prices hovered around €740/ton FD NWE in February 2016, when WTI crude hit $28/bbl. Back in 2009, they were much lower at €450/ton, although crude oil futures were relatively higher at $40/bbl.

Nowadays, crude oil futures hover around $30/bbl and European ethylene is trading at €660/ton ($735/ton) in Europe, standing at its lowest levels not seen since 2009.
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