Big Oil naturally is delighted when oil prices rise, but Exxon Mobil’s future seems even more tightly wound to it for an additional reason: its chemicals business.
Higher crude prices are good for petrochemical producers weighted more heavily toward North America and the Middle East—such as Exxon—because those gains make their products based on natural-gas liquids more competitive. Unlike facilities in Asia and Europe that use oil- or naphtha-based feedstock, U.S. and Middle Eastern petrochemical plants tend to use natural-gas liquids. More than 60% of Exxon’s chemicals production capacity was located in North America and Saudi Arabia as of 2019.
So far this year, the dynamics haven’t been favorable. Sustained low oil prices have improved the competitiveness of naphtha-based producers in Asia and Europe, according to a report from Morgan Stanley. At the same time, many analysts are forecasting that natural-gas prices will continue to rally, chipping away at the U.S. petrochemical producers’ advantage.
The good news is that demand for chemicals in general has held steady despite the stall in economic activity globally, softening the impact on all petrochemical producers. The pandemic might have curbed people’s desire to travel, but not their need for plastic packaging. Demand for polyethylene, one of Exxon’s main chemicals products, has been “incredibly resilient throughout
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