On July 4th, the World Meteorological Organization announced the formation of the El Ni ñ o phenomenon in the eastern Pacific region for the first time in 7 years, which will lead to global temperature rise and destructive weather and climate patterns. On the same day, the US Capitol Hill News reported that, according to the data of the National Oceanic and Atmospheric Administration (NOAA), July 3 was the hottest day on record on earth. In the context of El Ni ñ o, the global Petrochemical industry will also be significantly affected. High temperatures or direct driving of oil demand can also lead to a reduction in agricultural product production, thereby affecting the agrochemical market.
‘Rescue’ Weak Oil Demand
The El Ni ñ o phenomenon usually leads to or exacerbates the occurrence of floods, extreme heat, droughts, and mountain fires, causing many adverse effects on local energy supply, industrial and agricultural production, water resources, ecological environment, etc. Meanwhile, the Saudi Ministry of Energy has just announced that the voluntary additional reduction of 1 million barrels of crude oil per day, which began in July, will be extended for one month until the end of August. Saudi Arabia stated that this move is aimed at jointly maintaining the stability of the international crude oil market with OPEC+countries. In May, Saudi Arabia voluntarily reduced its daily average crude oil production by 500000 barrels. After two production reductions, Saudi Arabia’s daily average crude oil production has decreased to 9 million barrels since July. In addition, Russia also announced measures to support oil prices on July 3rd, which will reduce oil production by 500000 barrels per day in August. This is also conducive to a boost in oil prices in the coming months.
In the post pandemic era, with the accelerated economic recovery and strong demand for electricity in industrial and commercial activities, the decrease in oil supply has played a supporting role. Under the influence of the El Ni ñ o phenomenon, energy prices may rise again.
Significant impact on agricultural Relevant market
Temperature is the most influential environmental factor on biological growth. Under extreme high temperatures, agricultural production may encounter impacts. The arid climate in the northern hemisphere caused by the El Ni ñ o phenomenon has led to a deterioration of the production environment for agricultural products such as soybeans and palm oil. At the end of June, the US Department of Agriculture released a report on planting area, which exceeded expectations by reducing the planting area of American beans, leading to a significant increase in external oil prices. Nan Hua Futures agricultural product analyst Bian Shuyang believes that the supply of American beans is already in a tight equilibrium state. As we enter the critical growth period of American bean cultivation, the weather is crucial, and the uncertainty of the weather determines the pattern of easy rise but difficult fall of American beans in the future. In addition to being an important food crop, soybeans are also important raw materials for chemical products such as bio based plastics, oilseeds, and paints.
In addition to soybeans, important chemical raw materials such as corn, rubber, and palm may also be negatively affected by high temperatures.