Goldman Sachs analysts today issued a “New Oil Order” report in which they predict oil prices to stay at lower levels for the next five years (Bloomberg, Reuters). They also see an increased M&A activity in the oil & gas sector over the next 12 months. “Lower-for-longer” was already mentioned by BP CEO Bob Dudley in an April note, although he did not confirm any M&A activity for BP.
“Lower-for-longer” especially impacts companies in the oil value chain, such as polymer or carbon black manufacturers who trade on oil indices (e.g. for carbon black: 1% sulphur fuel oil FOB barges Rotterdam acc. to Platts quotation). These companies have to overcome oil (& gas) price volatility and corresponding profitability shocks with cost reduction programmes while remaining flexible for future market developments.
A positive side effect for European manufacturers could be the reduction of Asian imports due to both low price levels in Europe and the low Euro-exchange rate. “Lower-for-longer” also may impact the introduction of other carbon black substitutes such as tyre pyrolysis carbon black, although I take the stance that this “green” carbon black product should not be sold on price incentive but rather on sustainability.
It is in times of low prices and low markets when companies can outrun their competitors through better management of challenging conditions. In high markets, there are no resources and processes are pretty much on autopilot. Low markets also stimulate differentiation by innovation.
Let’s crush the competition and be thankful for “lower-for-longer“!
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Martin von Wolfersdorff is principal consultant at WOLFERSDORFF CONSULTING. He helps chemical companies optimise sales & strategy and connects OEM companies with innovation providers. Martin also has expert knowledge in titanium dioxide, custom colour masterbatch, carbon black and tyre recycling materials like recycled carbon black and devulcanised polymers. He has held various roles from R&D engineer to commercial director EMEA at ICI, Huntsman Pigments, Americhem Europe Ltd and Cabot Switzerland GmbH.