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Demand for gasoline, as well as its price, have soared in recent months, spurring oil refiners to produce more of the engine fuel.
To do so, refiners have claimed a larger share of other petroleum derivatives needed to make gasoline.
As a result, the world is seeing a shortage of chemicals needed to make plastics, rubber, nylon, even some pharmaceuticals, are in short supply and their prices are shooting up.
Toluene and xylene, used in textiles and plastic packaging, recently reached their highest prices in at least 40 years.
Benzene, a foundational compound in a range of manufactured products, set a record price of $1,900 per ton in June.
Although oil prices have fallen from their recent highs, refined petroleum products are likely to remain scant, the Financial Times reported.
Some older refineries closed permanently during the COVID War as demand for refined products crashed. Also, Western sanctions are denying Russian oil and refined products to NATO countries’ markets, sharpening competition for remaining supplies.
Worsening the situation, natural gas prices in Europe have set a series of records, most recently doubling again this spring, the FT said. Russia also has shut down its main pipeline sending gas to Europe for “routine maintenance” but Europeans fear Russia might not reopen it.
We detailed this dramatic development in “New World Disorder Top Trend: Germany Rations Power as Russia Cuts Gas Supplies” (12 Jul 2022).
European refineries and chemical plants use natural gas to turn petroleum into a variety of products.
Also, record gasoline prices have prompted some refiners to use higher-quality additives in their gasoline.
“It’s like using cream instead of milk to blend into your coffee,” ICIS analyst Zubair Adam told the FT.
Some chemical firms and industry analysts think that prices may ease as supplies now are becoming more plentiful.
There is a current glut of polypropylene, according to Michael Boswell, CEO of Plastribution, a U.K. distributor of raw plastics. Polypropylene is a key ingredient in an array of common plastic items.
Optimism is not widely shared among industry observers.
“Over the past six months, surges in energy and oil prices increased costs in the petrochemical industry,” Hakan Bulgurlu, CEO of the Turkish appliance maker Arcelik, said to the FT.
“Under pressure from inflationary tides and recession forecasts, demand tightened recently, strengthening expectations for a downtrend in prices in coming months,” he added.
Others expect scarce refining capacity and tight oil supplies to keep short supplies and high prices in place.
“There isn’t enough fat in the system margin-wise for these cost pressures to be absorbed,” Steven Jenkins, chemical industry specialist at consulting firm Wood Mackenzie, told the FT. “The pressure is real.”
TRENDPOST: Plastics, like oil and natural gas, are a foundation of modern economies.
As consumer spending sags further, so will demand for plastic, allowing supply and demand to return to balance as supply chains gradually unknot themselves.