On July 5, international crude oil futures prices plummeted. The settlement price of the main U.S. WTI crude oil futures contract was US$99.50/barrel, a decrease of US$8.93, or 8.2%, and the settlement price of the main Brent crude oil futures contract was US$102.77/barrel, a decrease of US$10.73, or 9.5%. Oil prices suffered their biggest one-day drop since March, with Brent falling nearly 10%.
On the evening of July 7, the trading theme of the global market reversed, from plummeting to skyrocketing. International crude oil also “raised its head” in response!
It seems that there are no major events in the market
Why did oil prices suddenly plummet and surge?
Market risks are getting bigger and bigger!
Why did oil prices suddenly plummet and surge? The main reason is still due to the market’s rising concerns about the global economic recession, the commodity sector is under pressure, and energy commodities such as crude oil are bearish. However, the rise is more about the restoration of funds after the plunge.
From a supply and demand perspective, amid the Russia-Ukraine conflict, the geopolitical situation continues to deteriorate, and the expected backdrop of tightening crude oil supply has not changed. According to the views of the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) on the oil market, the crude oil market will still be in a tight balance state in the later period. In the second half of the year, with expectations of fuel shortages during the driving season and winter in Europe and the United States, and with the stable demand from China in the post-epidemic era, oil demand is likely to still grow moderately. However, the gap in Russia will not be filled by oil-producing countries in the short term.
However, in the long term, due to the impact of high inflation and interest rate increases, the risk of economic recession will put pressure on oil prices. The game points in the future market are supply shortages caused by geography and the risk of economic recession that may arise from the Federal Reserve’s interest rate hikes. All things considered, under the premise of tight supply and demand, the driving force for a sharp decline is not very strong, but the oil market may intensify the volatility in the future, the amplitude will increase, and the market risks will also increase.
Oil prices surge and plummet
Polyester raw materials are still cost-oriented and rising
The sharp rise and fall in oil prices has also brought about abnormalities in polyester raw materials. On the 5th, after the international crude oil crashed, the domestic textile raw material market immediately reacted, and the related polyester futures almost fell to the limit! As crude oil surged on the 7th, the domestic textile raw material market also “raised its head”! The surge in futures prices also led to a rebound in raw materials, especially ethylene glycol, which saw a sharp rise.
Abnormal fluctuations have brought instability to the spot market. For the polyester industry, a tragedy is also unfolding. Ups and downs are happening in the market. Downstream weavers are becoming more cautious not to purchase raw materials. Polyester factories, Traders are stuck with high inventories and pessimism has gripped the entire industry.
Recently, more and more companies in the industry have begun to “stop”, “reduce production” and “reduce burdens”. The operating rate of the polyester industry has dropped to the current 80%, which has dropped to the lowest level in two years. The operating rate of weaving is less than 50%.
The reason for the sharp drop in the operating rate of the entire industry is the decline in profitability and the sharp increase in inventory. Even if work is not stopped, it is impossible to make money. The textile and chemical fiber industry is currently in the off-season, with weak domestic demand, poor market transactions, and low operating rates. The inventory accumulation is obvious and the market confidence is insufficient.
The raw material fluctuations caused by the sharp rise and fall also affected traders and weaving companies. For a time, the textile circle was full of excitement, and the broken hearts of the bosses were severely impacted again!
In terms of the current upstream and downstream situation, with the global economic recession and severe inflation, the crisis is more severe than imagined. The industry must be prepared to live a hard life for a long time. For the polyester raw material PTA, three major factors will Restrict the next market trend.
1. Cost support weakens
Under the Fed’s interest rate hike cycle, the global loose monetary policy has shifted, and OPEC continues to increase production, and the crude oil market is facing pressure. As the trend of crude oil fluctuates downward in the second half of the year, and the demand for PX oil adjustment is expected to fall significantly, coupled with the gradual end of the PX device maintenance season in Asia, the PX market in the second half of the year will follow the trend of fluctuating decline in crude oil, which will support the cost of polyester raw materials. will also gradually weaken.
2. Supply pressure is expected to increase
There is no new PTA production capacity planned to be put into operation in the third quarter. In the fourth quarter, a new PTA device of 5 million tons is planned to be put into operation. An additional 2.5 million tons of new equipment may be put into operation. In the fourth quarter, the PTA supply side faces greater pressure, and PTA is likely to return to accumulating inventory. stage, supply pressure is conducive to PTA market conditionsfall.
3. Demand is expected to recover slowly
At the end of June, the inventory of major downstream polyester filament yarns was still at a high level for the year, and the operating rate of terminal looms was at a low level in the past 10 years. It is difficult to be optimistic about expectations for a recovery in demand in the second half of the year. As the weather turns hotter in July, the operating rate of looms is still likely to decline. Pay attention to the degree of recovery in the operating rate of looms in September, and the overall demand expectation for the second half of the year is cautious.
Taken together, cost support weakens in the second half of the year, new PTA production capacity is put into production, and downstream demand recovery is expected to be relatively cautious. Cost and supply factors are conducive to the decline of PTA market, which will offset the impact of demand recovery, and the market is expected to fall back in the second half of the year.
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