Increasing Oil Prices and the Impact on Petroleum-Based Products

Increasing oil prices are having a significant impact on petroleumbased products. The conflict in the Middle East has reduced oil production, disrupted shipping routes, closed refinery plants, and halted oil shipments in the region. As a result, the global price of oil has surpassed $100 per barrel, impacting manufacturers worldwide. 

In Canada, higher oil prices have not only forced transportation companies to implement a fuel surcharges, but have also increased the cost of inputs for building material products and plastic packaging and wrap. 

Petrochemicals refined from petroleum are used as key inputs in most building material products. About $20 billion to $25 billion worth of petrochemical products transit the Strait of Hormuz annually. As the conflict in the Middle East continues, building material suppliers are expected to see a 5–20% direct price increase due to supplychain disruptions and elevated global commodity prices. While not an exhaustive list, products that rely on petrochemicals in their manufacturing process include: 

• Products that require bitumen (for example, asphalt), such as shingles and roofing membranes 
• Products that use resin inputs (for example, polyethylene and polypropylene), such as PVC piping, plastic components, vapour barriers, and plastic packaging and wrap 
• Products that use chemical resins and solvents, such as caulking, paints, sealants, and construction adhesives 
• Products that require isocyanates and styrene, such as rigid insulation and spray foam 
• Wood products that use resin binders, such as oriented strand board (OSB), laminates, plywood, and vinyl flooring 

Furthermore, other key commodities exported from the Middle East include aluminum and steel. It is estimated that the region produces approximately 8% of the global supply of aluminum. About 5 million tonnes of aluminum are shipped each year through the Strait of Hormuz from regional smelters. In addition, Iran is the world’s 10th largest producer of steel. 

Aluminum smelters and steel plants in the Middle East have been targeted by missile attacks and, in some cases, forced to halt production. These disruptions have reduced global aluminum and steel supply, increasing global prices and allowing manufacturers to raise prices on aluminum and steel products produced in North America. 

Businesses should be aware of the potential impacts: 

• Products imported from Asia may face shortages and higher in prices due to the region’s reliance on Middle East exports. Avoid, where possible, overreliance on sourced materials from Asia. 
• While fuel surcharges should be removed if fuel prices decline, product pricing may not fully return to preconflict levels. It is important that businesses plan, prepare, and expect price increases on products. 
• Increases to global commodity prices means higher prices for manufactured products in North America.  

Supply-Build Canada