LONDON, May 8, 2019 /PRNewswire/ -- The oil and gas sector is a significant, albeit hugely volatile, source of molybdenum demand.
While short-term volatility in oil prices – which is often heavily driven by geopolitical factors, as observed last week – does not have an immediate impact on molybdenum prices, broader-scale oil market movements have much more of an influence. The oil and gas sector will remain the mainstay of global molybdenum demand over the next five years, particularly in North America as shale oil production continues to rise.
Oil and gas is the biggest source of molybdenum demand volatility
The oil and has sector has traditionally been the largest and most volatile end-use sector for molybdenum. Consumption from this industry depends largely on demand for molybdenum-bearing oil country tubular goods (OCTG) products, which is predominantly driven by investment in the construction of oil rigs, platforms, refineries and pipelines.
This investment in the upstream portion of the crude oil supply chain tends to correlate well with the oil price. When the Brent crude price remained consistently above $100 /bbl in 2011-2013, this sparked a significant increase in demand for molybdenum. Consumption from the oil and gas sector rose to 106 Mlbs in 2011, equivalent to 20% of total molybdenum demand. However, the oil price crash in 2015-2016 resulted in a significant drop in molybdenum consumption. Demand fell to just 80 Mlbs in 2016, just 15% of total molybdenum demand.
Average Brent crude prices have since strengthened from the lows of 2015-2016. The oil and gas sector had a strong, albeit volatile, year in 2018. Brent prices averaged $71.65 /bbl in 2018 – the highest yearly average since 2014 – and similarly peaked at a four-year high of over $85 /bbl in early October.
This steady recovery in oil prices has played a major role in boosting molybdenum demand. CRU estimates that molybdenum demand from the oil and gas sector grew by 8% in 2018, following 10.9% y/y growth in 2017. This contributed to the 4.1% y/y growth in overall global molybdenum consumption last year. The strengthening demand, combined with concentrate shortages in China, pushed moly prices into double-digits for the first time in over three years during 2018
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