New York, Nov 20--U.S. chemicals companies are bracing for even higher energy costs after deadly bombings in Turkey drove up oil prices Thursday, stirring concerns that the industry will need to spend even more for the fuels that make its products and run its plants, analysts said.
Oil futures in New York surged to their highest level in eight months -- $33.55 a barrel -- after a London-based bank and the British Consulate were bombed in Istanbul, the second such attack in a week.
While prices retreated in the afternoon, the early spike left some analysts wondering if crude would push elevated energy costs even higher for U.S.
chemicals, which are derived from natural gas and, to a lesser extent, petroleum, and are found in everything from car doors to fertilizers.
"Oil prices may pull up natural gas prices in the coming weeks and months if they remain high," said Gene Pisasale, senior investment officer at Wilmington Trust Co.
While the U.S. chemical industry makes 70 percent of its chemicals from natural gas and only 30 percent from oil-based feedstocks, analysts say a prolonged rise in oil could still be harmful.
Higher oil costs might compel more oil-based chemicals producers, like Europe, to switch to natural gas, forcing up its cost.
"A terrorist event will affect worldwide commodity markets," said Pisasale.
"To the extent it keeps commodity prices somewhat higher, it would tend to be a negative for energy consuming companies," like chemicals, said Pisasale, whose firm holds large positions in the biggest U.S. chemical makers, Dow Chemical Co.and DuPont Co.
That could worsen conditions for chemical companies who usually report their weakest results in the fourth quarter when cold weather demand for home heating raises the cost of natural gas in the United States and a slowdown in the construction and auto industries hurts demand for products.
Shares of U.S. chemical makers eased across the board, with the Standard & Poor's chemical index about 0.75 percent.
Already, chemical CEOs have been cautious about the fourth quarter.
Dow, whose profit doubled in the third quarter, warned it would struggle to match that performance because of high energy costs. DuPont, which reported a loss, has also been concerned about the impact of energy.
Easing those concerns are larger U.S. inventories of natural gas compared with last winter. At 3.15 trillion cubic feet, storage is essentially full, analysts say.
Nonetheless, supplies could slip because plastic makers and other natural gas users are scooping up the fuel, fearful that it could return to historic highs of about $9 per million British thermal units last February, about double its current price.
"The paranoia from the run-up ... in February is carrying through," said Hassan Ahmed, associate chemical analyst with Sanford Bernstein. "People are fairly trigger happy," to buy now
