Market update – Oil price & the packaging industry

Market update – Oil price & the packaging industry

We’ve all heard about rising oil prices, and obviously everyone is noticing it at the pumps. But what does rising oil prices mean for packaging?

Since the Russian conflict in Ukraine, oil prices have soared to their highest since 2008 – over $120 per barrel. Although the long-term outlook is yet unclear, there are estimates that it will stabilise around $100 per barrel – high enough to still see an impact on packaging products.

Oil is the raw material used for a wide range of packaging materials. So when there is an increase in demand, a problem with supply or an increase in price; packaging manufacturers will face problems.

Aside from the obvious price impact on transportation of products for delivery across the entire supply chain, the price of oil as a raw material – used to make certain packaging products – obviously has an impact too. The impact of a higher oil price covers a broad range of materials used in packaging, and food packaging including LLDPE, LDPE and naphtha.

A high oil price isn’t the whole picture either. Oil production being able to meet global demand is also critical. Russian crude oil accounts for around 12% of the world’s production. Although currently there are no formal sanctions placed on Russian energy exports, there is already a global shift by private companies away from Russian energy. A number of global players – including ExxonMobil and BP – have stopped their operations in Russia. Adding to this, with shipping companies blocking cargo from Russia, oil and its associated products aren’t being sold. There have also been reports of ships being refused at refineries due to their Russian link.

Going forward it is unclear which countries will import oil from Russia at all. Even China, who Russia supplies, has seen a dip in demand due to lockdowns throughout the country. However, it is evident that there will be a decrease in Russian crude oil demand and therefore a subsequent decrease in production. However, in order to continue to meet global demand for oil, other options are on the table – including the possibility of a nuclear deal with Iran which would free up Iranian oil to plug the global gap.

The whole situation is incredibly complex, and no clear outcome is certain. But over the coming months, cost of production and supply of the raw materials to make packaging products is going to be something we will all be keeping our eyes on. We would recommend working with suppliers to secure stock, whilst also reviewing where consumption of plastic and plastic derived products can de reduced or eliminated.