A surge in oil prices following Israeli and U.S. strikes on Iran is expected to further exacerbate delays to the European ethylene contract price settlement for March, sources told OPIS Monday.

The European propylene monthly contract price for March delivery settled at €1,000 ($1,180)/metric ton, up €35/mt on the month, with producers also looking for the same transfer of firmer February naphtha costs into the ethylene monthly contract price, but discussions reached an impasse on Friday. The February ethylene contract price was settled at €1,095/mt FD Northwest Europe

March buyers refused to agree the same €35/mt increase as for propylene, citing softer fundamentals compared to propylene but sources told OPIS Monday that the dial had now moved, given the jump in crude oil futures and LPG prices after military strike began on Feb. 28.

“Up until Friday, it was €35/mt increase [proposed] but now producers are thinking about €50-60/mt increases as dynamics have changed,” a polymer trader told OPIS. “There is an expectation that oil will touch $100/barrel … We saw $80/bbl already which suggests that it will likely get to $100/bbl.”

Although demand recovery for ethylene and derivatives has been slow, ethylene and derivative buyers are likely to enter the market to replenish stocks that they have kept at ultra-low levels up until now amid concerns over availability of product.

“We expect supply disruption,” the trader said. “Polypropylene does come from Middle East, but it is not as much of big a deal as high density polyethylene and linear low-density polyethylene. Middle East producers can truck it to different ports but that will cost more. Making it is one thing, getting hold of it is another thing. It depends on buyers; they have run stocks at reasonably low levels. How panicked will the buyers be? We will know soon.”

“Propylene producers will be kicking themselves that they rushed to agree the propylene contract price at an increase of €35/mt on Friday,” he added.

Reporting by Miguel Cambeiro, mcambeiro@opisnet.com; Editing by Rob Sheridan, rsheridan@opisnet.com