Crude Oil Prices Plummet to Multi-Year Lows as Weak Demand and Recession Risks Trigger Selloff

Crude oil: A daily drop of 5% hit a new low, Goldman Sachs predicted that it would “change its tune” again!

2023 is about to pass halfway, and the crude oil market still has no “improvement” under the benefit of production cuts.

According to monitoring data, crude oil has fluctuated greatly recently. Among them, the current price of Brent crude oil is 71.84 US dollars per barrel, a decrease of nearly 5%, a new low since 2021 ; the price of WTI crude oil is 67.12 US dollars per barrel, a decrease of 4%, a new low since this year.

Although OPEC+’s ultra-long production reduction plan until the end of 2024 has been reached, and Saudi Arabia will reduce production by an additional 1 million barrels in July, it will slightly boost the oil market. However, the recovery of the global economy is slow, the recession is obvious, and interest rate hikes continue to suppress the demand for crude oil, resulting in a sharp decline in crude oil.

The decline of crude oil may have become inevitable! This month, Goldman Sachs once again “revised” crude oil forecast data . It originally predicted that Brent crude oil would reach US$95/barrel by the end of the year . WTI crude oil was originally forecast to be US$89/barrel by the end of the year, but is now forecast to be US$81/barrel, a decrease of US$7/barrel . It is expected that there are still many negative factors in the crude oil market in June, and we should be alert to the continuous downside risks.

Bulk: The demand is weak, and the overall price drops by 12%!

The overall demand of the terminal has decreased, leading to an overall decline in the prices of crude oil and bulk commodities.

According to data from the National Bureau of Statistics, from January to May 2023, international bulk commodity prices will generally decline , and domestic and foreign industrial product market demand will generally be weak. Ex-factory prices will drop by 2.6% year-on-year, and purchase prices will drop by 2.3%. Among them, the prices of chemical raw materials and chemical products manufacturing decreased by 2.0% month-on-month and 12.2% year-on-year.

Raw materials plummeted by nearly 10,000 yuan! Involving epoxy, PVC and other industries!

The continuous downward adjustment of the raw material end, as evidenced by the data of the Statistics Bureau, the downturn in the chemical bulk market is a foregone conclusion. At present, many industrial chains have plummeted to new lows.

Raw material decline

▶ The price of polyolefins fell to a three-year low: PP standard products in some areas fell below 7,000 yuan , a new low in the past three years; PE prices were at a two-year low, falling below the 8,000 mark.

▶ ABS may hit the lowest point in history again: the market price has continued to fall for more than 2 years, from a historic high of 19,850 yuan/ton at the end of 2020 to around 10,000 yuan/ton in June 2023, with a cumulative drop of more than 9,000 yuan / ton , a drop of 48% ;

▶ PVC fell to a three-year low: some grades have fallen below the 5500 mark, and PVC/ethylene method/type 5 (Qilu Chemical City) dropped by up to 2633 yuan/ton compared with last year.

▶ Bisphenol A hit a three-year low: In June, the price of raw materials has fallen below the 9,000 mark , with a drop of 1,000 yuan/ton within the month;

▶ PC hit a three-year low: In June, the price of PC/Luxi Chemical/1609T was 13,700 yuan/ton, a drop of .

▶ Epoxy resin fell to a ten-year low: Affected by the continuous negative pressure on the market, the decline rate of epoxy resin was significantly accelerated, and factory offers were lowered one after another. The mainstream market price hit a new low since 2017 and was close to the historical low in 2016;

▶ POM plummeted more than ever: In the past three months, the market price of POM in East China has plummeted by 2475 yuan/ton ;

▶ The overall decline of PA6 : PA6/Hunan Yuehua/YH800 dropped by up to 3054 yuan/ton compared with last year ;

▶ PA66 fell sharply: PA66/Asahi Kasei/1300S dropped by a maximum of 14,264 yuan/ton compared with last year ;

▶ PET bottle flakes : the overall annual decline in the three major markets of East China, South China, and North China is 2,300 yuan/ton ;

▶ PBT : East China and South China markets fell by up to 6,800 yuan/ton compared with the same period last year .

Terminal: Restricted price cuts, gross profit dropped by 88.8%!

The terminal is also affected by insufficient demand, and the price has been greatly reduced. Among them, there are rumors of “big price cuts” in real estate, automobiles, tires and other industries, and some of the automobile brands’ gross profits have dropped by nearly 90%!

Taking Weilai as an example, it recently announced that the price of all models will be reduced by 30,000 yuan, the main model ET5 will be below 300,000 yuan, and the ES6 will be reduced to 338,000 yuan. And Weilai’s 2023 first quarter report shows that in terms of gross profit in the first quarter, the company achieved a gross profit of 162 million yuan during the period, a year-on-year decrease of 88.8% and a month-on-month decrease of 73.9% ; the gross profit rate was 1.5% , a month-on-month decrease of 2.4%. Compared with the same period in 2022, Weilai’s gross profit margin was 14.6%, and the gross profit margin of automobiles was 18.1%, a drop of nearly 15%!

It is only a matter of time before the upstream is transmitted to the downstream. In the case of an economic recession, large items such as houses and cars will be the first to experience significant declines. Can the chemical market be rejuvenated in the future? It depends on the market outlook and technological developments. The market is now optimistic about the development of green energy and chemical industry. BASF, Sinopec and other leading companies have entered the market one after another. The main growth trend of chemical industry will be reflected in green chemical raw materials in the future.

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