The global oil price has been in a state of free fall over the past few weeks. It is no surprise then that all eyes were fixed on 27 November, when members of the OPEC group of oil-producing states met to lay out their policies, which to date have set the course for the global oil market. During their get-together, however, OPEC members did not agree to cut output – a response many had expected as a countermeasure to the current situation of oversupply.

For the first time since the first oil crisis of 1974, OPEC has found itself pushed to the sidelines. “Even if we were to cut back our output, this would not put an end to the current oversupply, Kuwait’s oil minister said in explaining OPEC’s dilemma.

The long market is not the result of a decline in demand. Even if the global economy is not exactly buoyant, a comfortable buffer does exist between now and the crisis of 2008. Instead, the current situation is the result of the market’s being flooded with a wave of new oil wells.

“The month of October was an important milestone for the oil and gas industry in the United States and essentially for the entire world. For the first time in more than 18 years, production in this giant country exceeded imports again. ... The fact that the US is again moving towards self-sufficiency has brought relief to the global situation on the oil markets in terms of availability,” Plasteurope.com wrote in December 2013 in referring to the state of the US shale gas revolution (see Plasteurope.com of 10.12.2013).

The world’s largest oil consumer once again became self-sufficient. What we are witnessing now is the second round of the shale revolution.

In 2010, when North American gas prices fell drastically as a result of shale exploration, the term “shale gas revolution” started to become established. While oil remained expensive, gas prices continued to fall.

This new reality slowly but surely started impacting the petrochemical sector as well as energy-intensive feedstock industries, which are now relocating their investments to North America. European refineries, meanwhile, were being sent to their deathbeds. After all, who really needed this expensive and non-competitive energy source called oil?

Yet once again reality is proving all status quo conclusions wrong – as it turns out, there is not just shale gas, but also significant quantities of shale oil.

Some experts insist that the oil price’s decline is just temporary, predicting that it is sure to surge quickly to a level of USD 100/bl again. They could not be more wrong. Opinions of this ilk are tantamount to those who in 2010 and 2011 warned of the short-term nature of the gas price decline. Instead, here, too, costs continue to fall.

The fate of the oil price will likely be similar, even if it still remains unclear where it will settle once the current adjustment period comes to an end. All signs currently point to somewhere within the range of USD 65-75/bl, which would reflect the costs currently associated with shale extraction.

For the global petrochemical and plastics industries, a lasting downward correction in the oil price means the game has changed again. For the European plastics sector, the commodity’s fall is the first good news in a very long time. At the very least, this trend will relativise what until very recently seemed to be the end of days for the old continent.

Summa summarum: Things might, after all, not be as bad as they seem.

Daniel Stricker & Peter Jetzer