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For the past several years, U.S. petrochemical producers have held that one of the biggest threats to their shale gas raw material advantage would be a sharp decline in oil prices. Now, these fears are materializing, thanks to a glut in world oil supplies and the refusal by oil-exporting countries to cut production.

Since reaching a peak of $107.26 per barrel in June, prices for the U.S. benchmark crude—West Texas Intermediate—have fallen to below $70. The global oil market is being oversupplied to the tune of 700,000 bbl per day over demand of about 93.2 million bbl per day, according to Citigroup analyst Edward L. Morse.

The oversupply problem came to a head on Thanksgiving Day, when the Organization of the Petroleum Exporting Countries (OPEC) announced it wouldn’t cut production. Analysts think Saudi Arabia is trying to force higher-cost players, namely North American producers, out of the market. The following day saw a 10% drop in oil prices to their lowest levels since 2009, in the midst of the financial crisis.

The lower oil prices are bad news for U.S. chemical producers, which predominantly make chemicals from natural gas, but good news for competitors in Asia and Europe, which use petroleum-based raw materials.

The U.S. still has a petrochemical competitive advantage over other regions, notes Stephen Zinger, head of chemicals in the Americas for the consulting firm Wood Mackenzie, but the edge is half what it was a year ago. U.S. costs would reach parity with other regions if oil prices sink to $40 to $50 per bbl. “Sustained this way for several years, this could change the investment outlook for some producers,” Zinger says.

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