Lead: Brent crude oil futures continued to rally, rebounding from $71/bbl at the start of July and climbing to $100/bbl by July 23, an increase of as much as 40.8%. Prices then fell to around $84/bbl by July 28, still up 18.3% from the beginning of the month. Domestic cracked C5 prices rose by 650 yuan/mt from the beginning of the month, an increase of 12.6%.
As of July 29, Brent was at $90.74/bbl, up 25.19% from before the conflict. The July average Brent price (through July 29) was $83.44/bbl, down 1.17% month-on-month but up 19.97% year-on-year. International oil prices have been extremely volatile recently, mainly because the outlook for the U.S.-Iran situation remains uncertain. Market sentiment has continued to swing with headlines from both sides, and daily moves exceeding $5 have become frequent.
Geopolitical conflict coupled with reduced supply drives light fractions to outperform
Since late June, Shandong mixed C5 prices have consistently exceeded local xylene prices. As of this week, the weekly average price of Shandong mixed C5 was 600 yuan/mt higher than xylene. Xylene, a benchmark high-octane product, has historically been priced above mixed C5, which has a lower octane value. Thus, the recent tight supply of mixed C5 has pushed its price well beyond its octane value.
Table 1 Changes in national mixed C5 commercial supply (Unit: 10,000 mt)
| Product | June | July (est.) | Change | Change % | Impact period | Maintenance reason |
|---|---|---|---|---|---|---|
| Mixed C5 commercial volume | 32.84 | 17.22 | -15.62 | -47.56% | Around 45 days | Planned |
Starting from late June, mixed C5 producers Weilian Chemical, Wudi Xinyue, and Weifang Hongrun took their reforming units offline for maintenance, while a plant in Northeast China conducted staggered maintenance. In July, mixed C5 commercial supply in the market was about 172,200 mt, down 156,200 mt month-on-month, or 47.56%. Supported by the mixed C5 supply-demand fundamentals, producers have a strong willingness to raise prices. Combined with traders' widespread holding mentality, the market atmosphere strongly favored price support, further expanding the upside for mixed C5.
Driven by mixed C5 prices, Shandong raffinate prices followed upward. As a major light fraction product, mixed C5 acts as a driver for prices of other light fractions such as raffinate, underpinning the rise in raffinate prices.
Cracked C5 output bottomed out in mid-July, with some impact on supply
Meanwhile, with the re-emergence of geopolitical conflicts, some domestic producers reduced their operating rates to 60–70%, a level last seen in March. However, only about six enterprises cut operating rates this time, which had a limited impact on cracked C5 output. As previously idled units gradually resumed production, the output decline came to a halt and reversed in July.
According to Chempricehub statistics, domestic cracked C5 output fell to around 68,000 mt in the week of July 15. With Sinopec-SK Petrochemical and Gulei Petrochemical resuming production in the latter half of the month, output recovered somewhat by month-end. As of this week, output has risen to around 69,000 mt. At present, about six domestic enterprises are operating at reduced loads, and some producers have indicated that further equipment adjustments cannot be ruled out depending on future feedstock availability.
Table 5 Price changes across the cracked C5 value chain (Unit: yuan/mt)
| Product | July 1 | July 30 | Change | Change % |
|---|---|---|---|---|
| Brent crude oil | 71.57 | 89.03 | 17.46 | 24.4% |
| Cracked C5 | 5152 | 5785 | 633 | 12.3% |
| Isoprene | 10796 | 11729 | 933 | 8.6% |
| Piperylene | 7188 | 7375 | 187 | 2.6% |
| Dicyclopentadiene | 6610 | 6940 | 330 | 5.0% |
| C5 raffinate | 5346 | 6213 | 867 | 16.2% |
| Road-marking C5 petroleum resin | 8600 | 9500 | 900 | 10.5% |
| Hydrogenated petroleum resin | 12000 | 12500 | 500 | 4.2% |
Looking at this round of price increases, crude oil rose as much as 24.4% from the start of the month to the end of the month, while cracked C5 rose 12.3%, weaker than crude. Among downstream products of cracked C5, the strongest support came from C5 raffinate, which gained as much as 16.2%. Gains in other deep-processing products were generally below 10%. This shows that the latest crude oil price rally did not trigger aggressive consumption by downstream and end users, and purchasing sentiment remained relatively restrained.
At present, the U.S. is still weighing between expanding strikes against Iran and returning to negotiations. If the U.S.-Iran conflict cannot be quickly de-escalated, and based on this assumption, international oil prices are expected to have some upside in August. On the domestic mixed C5 supply-demand front, mixed C5 producer Weilian Chemical and a refinery in the Northeast are expected to resume before mid-August, while Wudi Xinyue and Weifang Hongrun are expected to resume by the end of August. The mixed C5 supply-demand balance will gradually ease in August. The current high prices of mixed C5 will gradually normalize. After mid-August, this will exert bearish pressure on raffinate prices. The biggest driving force behind this round of gains came from raffinate; with the downside risk for raffinate in late August, it will also have a bearish effect on cracked C5 at that time.
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