There is nothing new about the fact that the historically difficult relations between the two rivals in the Persian Gulf – Iran and Saudi Arabia – are extremely strained right now. The civil wars raging in Yemen, Iraq and Syria are often described as proxy conflicts between these two regional hegemons. These conflicts reverberate in the global oil and petrochemical markets – a fact that became all too clear recently when it came to the ethane price (see Plasteurope.com of 25.01.2016).

Iran is not even trying to hide its joy in undermining all the Saudis’ efforts at stabilising prices along the oil chains. After the latter’s intensive negotiations with Russia over reduced exploration rates had failed, Iran announced the price of its initial, post-sanctions crude deliveries to Europe. The key orientation for the price level of "Iran Heavy" is the comparable Saudi oil grade, whose price Iran said it will always underbid by USD 1.25/bl. If that is no call to arms, what is?

At the same time the government in Tehran said it would not even contemplate exploration quotas. Why indeed? After five lean years any revenues that can be made from oil will bring in additional cash. Iran has thus started dumping its oil on the global market. Only recently the first tanker filled with crude set sail for Europe. Reports indicate that the shipment is destined for France, with another tanker headed to China and a third to Spain.

One of the outcomes of this oil war is that European refineries – which were in effect pronounced dead last year and appeared to be just waiting for their decommissioning – are now running at rates hardly seen before.

Although downstream notations are falling, the low crude oil price means mineral oil producers are currently having a blast. Furthermore, the last time feedstocks for European polymer lines were as readily available defies recent memory. That is part of the reason why propylene prices have hit a historical low.

Iranian PE and PP exports will probably find their way to Europe quite soon. How local polymer producers will respond to these volumes remains unclear. Reducing output – the course of action many of them took at around this time last year – hardly seems like an option in today’s context. On the other hand, European suppliers will fight tooth and nail to defend their current margin levels, which in their perspective have finally reached a satisfactory state. It looks like we are headed into an interesting spring on the polymer markets.

Daniel Stricker
PIE Head of Market Research