This year, expectations for a rebound in performance were high in the domestic petrochemical industry, but dark clouds are gathering again. Negotiations for a ceasefire in the Russia-Ukraine war have become stagnant, and forecasts indicate that crude oil drilling will not increase due to U.S. tariffs on steel and aluminum. If the bullish trend in crude oil prices continues, domestic petrochemical companies will have to bear high expenses.
On May 1 (local time), the price of West Texas Intermediate (WTI) crude oil futures for delivery in May on the New York Mercantile Exchange (NYMEX) rose by $2.12 (3.1%) to $71.48 per BARREL. This is the highest figure in five weeks since mid-February. WTI has shown bullish trends over the month since trading at $66.03 per BARREL on March 10.
One reason for the recent rise in oil prices is the decreased expectations for a ceasefire in the Russia-Ukraine war. Since the inauguration of the Trump administration in January, there were many forecasts that discussions for a ceasefire would gain momentum, but contrary to expectations, negotiations have shown a sluggish trend. President Trump recently noted that if Russia does not agree to a ceasefire with Ukraine, a tariff of 25-50% will be imposed on countries purchasing Russian crude oil, indicating that companies in those countries would not be able to operate in the U.S.
The end of the Russia-Ukraine war is anticipated to be a boon for domestic petrochemical companies. It was expected that once the war ended and economic sanctions on Russia were lifted, Russian crude oil would be supplied again, reducing the burden of crude oil imports. Currently, China is importing Russian crude oil at low prices to produce inexpensive petrochemical products. South Korean companies have been visibly affected since the beginning of the Russia-Ukraine war, losing ground in price competition with China.
According to the U.S. Energy Information Administration (EIA) and the Korea International Trade Association, China's crude oil imports reached 563.99 million tons in 2023, an 11% increase from the previous year; however, the import value fell by 7% to $335.5 billion (approximately 485.87 trillion won). This was due to a significant import of Russian crude oil at low prices. In contrast, domestic corporations could not import Russian crude oil and naphtha, increasing their cost burdens. Based on 2023 data, China imported crude oil at $595 per ton, while South Korea paid $643 per ton, which is 8% more expensive.
President Trump's high tariff policy is also dousing expectations for a recovery in domestic petrochemical companies' performance. The U.S. imposed a 25% tariff on imported steel and aluminum last month, causing the costs of drilling facilities such as pipes to skyrocket, impacting U.S. energy companies.
President Trump publicly declared that he would increase shale oil drilling to lower energy prices. He also shouted the slogan "drill, baby, drill" to encourage expanded oil and gas production. If U.S. crude oil supply increases, international oil prices will fall, reducing the burden of crude oil imports on domestic petrochemical companies.
According to Reuters, since the tariff on steel and aluminum took effect on April 12, concerns about worsening performance have grown in the U.S. energy sector. Energy companies require a significant amount of steel to build drilling and refining facilities, and the possibility of skyrocketing costs due to tariffs has increased. The Dallas Federal Reserve Bank (FRBD) in Texas, where shale companies are concentrated, recently conducted a survey of oil and gas company executives, revealing that the drilling input cost index for the first quarter rose sharply to 30.9 from 23.9 in the previous quarter.
Kwon Hyo-jae, CEO of COR Energy Insight, noted, "U.S. energy companies use a large amount of steel in drilling and transportation, and prices have risen sharply due to tariffs on imports. While President Trump may shout 'drill, baby, drill,' it does not seem easy for crude oil and natural gas production to increase in the U.S."