(Bloomberg) -- Sasol Ltd. expects a “volatile environment” for crude oil as geopolitics help sway the market.
“It’s going to move back and forth depending on what’s happening in the world -- political tensions, supply disruptions,” said Steve Cornell, co-chief executive officer of the South African energy and chemicals company. Market drivers include the much-anticipated U.S. decision on the global nuclear deal with Iran, he said.
Oil has advanced in recent weeks on speculation over the fate of the nuclear accord and amid rising geopolitical tensions in other parts of the Middle East. Jitters over potential supply interruptions pushed up volatility last month to the highest since February, though levels remain far below those of early 2016.
“Higher oil prices are very positive for Sasol,” Cornell said Tuesday in an interview on Bloomberg Television. “A large majority of the products that we make are somehow tied to the price of crude, especially in the chemical space, in the fuel space -- our petrol, our diesel -- our plastics, our alcohol-based products.”
The Johannesburg-based company deepened cost cuts in 2016 as the oil market languished in a three-year slump. To counter lower prices, Sasol identified savings of as much as 75 billion rand ($6 billion) by June 2018 as it sought to operate profitably at $40 to $50 a barrel. Benchmark Brent is currently trading above $75.
Sasol expects a “long-term” price of about $60 a barrel, according to Cornell, who said “if it goes down some, it’s not unexpected for us.”
The company’s chemical business has grown to be its main profit driver. Its $11 billion project at Lake Charles in Louisiana, which will convert ethane into plastics and other products, will start operating by the end of this year, Cornell said. Sasol expects sales of $1 billion from the development by the end of the decade.
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