Analysis of the impact of "Morgan Stanley Analysis of OPEC+ production cuts" on polyethylene

According to Morgan Stanley's analysis and related data, the impact of the OPEC+ production cuts on polyethylene (PE) feedstock can be observed in several ways. Below is a more data-supported explanation:

1. OPEC+ Production Cuts and Oil Price Fluctuations:
   Morgan Stanley reports that OPEC+ plans to keep its production cuts at a certain level and may extend these measures. Continued cuts in production mean a reduction in oil supply, which can keep oil prices elevated. Morgan Stanley forecasts that Brent crude prices will be lowered by $2.50 per barrel to $75 per barrel for Q1. While oil prices are slightly reduced, they remain in a high range, directly affecting the production costs of petrochemical products.

2. Increase in Oil Product Inventories:
   According to Morgan Stanley's report, crude oil and refined product inventories have increased by 600,000 barrels per day (bpd) year-to-date. This growth suggests that there is still some oversupply in the global market, but due to ongoing production cuts, the increase in inventories may not be enough to fully balance the market’s supply shortage. As inventories continue to grow, oil product costs are likely to remain elevated, thus impacting petrochemical sectors, particularly the prices of polyethylene.

3. Impact of Russian Cuts on Supply:
   Due to new sanctions, Morgan Stanley has revised down its forecast for Russian oil supply by 150,000 bpd in the second half of the year. This reduction will further tighten global supply, especially for regions dependent on Russian oil or its derivatives, leading to higher production costs for related polyethylene production.

4. Pressure on Global Polyethylene Raw Materials:
   Ethylene, a key feedstock in polyethylene production, is closely tied to oil prices. According to IHS Markit, ethylene prices globally increased by 5%-7% in 2024, driven by oil price fluctuations and tight supply in the petrochemical sector. The potential extension of OPEC+ production cuts could cause ethylene prices to continue rising, further increasing production costs for polyethylene.

5. Demand and Supply Imbalance:
   According to the International Energy Agency (IEA), global oil demand is expected to grow by around 1.2% in 2025, while OPEC+ production cuts could further strain the supply side. In particular, Asian markets continue to show strong demand for petrochemical products, which could lead to tight polyethylene feedstock supply, pushing prices even higher.

Overall Impact:

• Persistently high oil prices will likely lead to higher polyethylene production costs, affecting the downstream plastics industry’s profit margins.
• The reduction in Russian supply will further tighten global oil and petrochemical product supplies, increasing price volatility.
• Polyethylene producers may face rising raw material costs, which could be passed on to downstream consumers, driving up polyethylene prices.

These data points show that OPEC+ production cuts have a significant impact on polyethylene feedstock, with oil prices remaining high, thereby applying continuous pressure on polyethylene production costs and prices.