There is a light at the end of the long tunnel, although it may take a good deal of time to get there.
In a nutshell, that's the prediction of Bill Hyde, senior director of olefins and elastomers for IHS Chemical Inc., as he looks ahead at oil prices, the oil and gas industry, and the return to normalcy.
Expect oil prices to be relatively volatile in the near term, but generally range bound, he said in a recent interview. “They should start to trend consistently higher in the second half of this year as production levels in the U.S. decrease and the market finally begins to pull down some of the inventory surplus.”
Relatively strong demand, “especially in the U.S. due to lower prices, is factored in our outlook,” according to Hyde.
He said the upward trend will be much slower than the downward plunge that put the oil and gas industry in the situation it finds itself in today. “As we move into the next few years, the upward trend will continue, though market volatility will be significant.”
In terms of the rubber industry, Hyde said demand for replacement tires in the U.S. should increase with more miles driven. Lower gas prices also should stimulate larger vehicle purchases so original equipment tires should be larger on average, he said.
“However, at the same time, low oil prices are also a factor in keeping natural rubber prices down, combined with surplus supply,” Hyde noted. “Weak natural rubber prices are one of the biggest reasons that global rubber margins are weak.”
In terms of synthetic rubber, he said producers have no significant pricing power as long as two dynamics control the market. The first is weak natural rubber prices; “the second is low operating rates for synthetic rubber due to overcapacity.”
Hyde said it will take some time, possibly several years, “before synthetic rubber margins strengthen to "reasonable' levels.”