The oil-price decline since mid-2014 has been a major shock to the global chemical industry. Many producers were underprepared for both the magnitude and speed of the impact on their businesses. The changing nature of oil supply and demand is expected to exacerbate volatility and increase the likelihood of oil-price shocks. Chemical companies need to develop the organizational agility to prepare for impending shocks and take rapid action when they occur, to capture value and minimize threats.

After four years of relatively stable prices, some chemical companies appear to have forgotten the inherent volatility in the oil market. These so-called return-to-normal lower oil prices are expected to prevail in the market for the medium term and are driven by fundamental changes in the supply and demand dynamics of the oil industry. In particular, oil supply has grown larger in recent years, with the addition of new production—including unconventional sources such as US light tight oil (LTO), which is produced by horizontal drilling and hydraulic fracturing of shale rock; new offshore sources in Angola, Brazil, Nigeria, and other regions; and rebounding supply from countries that have experienced political or social unrest (for example, Iraq and Libya). The impact of this supply has been compounded by the inaction of the Organization of the Petroleum Exporting Countries (OPEC) to curtail production since crude-oil prices started falling last year. On the demand side, growth has slowed as a result of lower global economic growth and increased energy efficiency driven by historically high oil prices and carbon dioxide reduction initiatives.

The oil-price decline since mid-2014 has been a major shock to the global chemical industry. Many producers were underprepared for both the magnitude and speed of the impact on their businesses. The changing nature of oil supply and demand is expected to exacerbate volatility and increase the likelihood of oil-price shocks. Chemical companies need to develop the organizational agility to prepare for impending shocks and take rapid action when they occur, to capture value and minimize threats.

After four years of relatively stable prices, some chemical companies appear to have forgotten the inherent volatility in the oil market. These so-called return-to-normal lower oil prices are expected to prevail in the market for the medium term and are driven by fundamental changes in the supply and demand dynamics of the oil industry. In particular, oil supply has grown larger in recent years, with the addition of new production—including unconventional sources such as US light tight oil (LTO), which is produced by horizontal drilling and hydraulic fracturing of shale rock; new offshore sources in Angola, Brazil, Nigeria, and other regions; and rebounding supply from countries that have experienced political or social unrest (for example, Iraq and Libya). The impact of this supply has been compounded by the inaction of the Organization of the Petroleum Exporting Countries (OPEC) to curtail production since crude-oil prices started falling last year. On the demand side, growth has slowed as a result of lower global economic growth and increased energy efficiency driven by historically high oil prices and carbon dioxide reduction initiatives.

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