by Freedonia Industry Studies
March 10, 2020
March 10, 2020 - On Monday March 9, crude oil fell to its worst day since 1991, with the coronavirus hampering demand at the same time OPEC and Russia went into a supply-side trade war. This is the double-punch that hit the energy industry hard and was a big reason for the S&P 500 having its 19th worst one-day drop by percent change and the worst since 2008.
However, there’s a flip side. Crude oil and gas prices are falling, potentially benefiting industrial users and consumers. Not only is industry using less oil as global demand pressures are reduced by curtailed business travel and manufacturer closures in quarantined areas, but Saudi Arabia is increasing supply.
Lower crude oil prices will help chemical producers outside of the US, at least on the raw material side, since there are a number of companies that produce ethylene and other basic chemicals from crude oil instead of from natural gas. However, that will likely not be enough to offset the drop in demand for more chemical end-use products as the effects of canceled events, flights, vacations, etc., ripple their way through the global economy.
Consumers will likely be happy about the lower gas prices. However, with many limiting or delaying travel plans out of real and/or perceived risk of either contracting COVID-19 or being stuck in a quarantine zone in this volatile time, they are not likely taking advantage of it in the way they ordinarily would. A return to higher levels of consumer confidence will be needed for consumers to absorb this higher level of production.
For more information, please see The Freedonia Group’s coverage of Chemicals, Plastics & Other Polymers, and Consumer Goods. Freedonia Custom Research is also available for questions requiring tailored market intelligence.