Introduction: Geopolitical conflict has pushed crude oil higher while breaking expectations of a sustained and steady recovery in domestic supply. Benzene market prices were driven all the way up under the impact of low-inventory restocking, breaking through the second-quarter high.
This week, East China benzene spot continued its strong rally, with mainstream discussions in the range of RMB 8,890–9,960/mt. The benzene market this week was dominated by geopolitical conflict, with pronounced cost-side drivers, but downstream negative feedback was not yet evident. Buyers with end-use demand and contract customers chased the rally and entered the market to purchase; port inventories were drawn down, tradable supply in the market was insufficient, and spot market prices quickly followed higher. Forward-month contracts showed limited follow-through. To ensure continuity of current production, downstream enterprises had to accept high-priced spot cargoes and maintain need-based procurement, creating rigid support on the spot side. However, the market was generally not confident about the sustainability of high prices—the geopolitical premium could be given back at any time due to progress in peace talks, and previously shut maintenance units would eventually return, while import arrivals would also recover. The tight forward supply pattern would be hard to sustain for long. Therefore, downstream players were generally cautious in the forward months and unwilling to chase highs and lock in costs, causing forward-month prices to lag markedly.
With Shenghong Refining & Chemical at the end of August as the marker, benzene capacity utilization ended a five-month downtrend and turned upward. Based on the current restart progress of benzene units, China’s benzene capacity utilization is expected to recover to the pre-war 79% level seen in February in early October.
However, the recovery in capacity utilization is premised on refineries securing feedstock smoothly—that is, the Strait of Hormuz resuming passage as expected. As the Middle East situation intensifies, the market increasingly leans toward the view that the Strait issue will be difficult to resolve in the short term, and is trading the possibility that domestic independent refineries will struggle to obtain crude oil in October and may cut production. If so, expectations for forward supply recovery will be broken, and the forecast that September will be balanced and October oversupplied may also need to be revised.
Affected by five consecutive months of declining domestic operating rates and lower imports, East China port inventories hit a five-year low in August but did not rebound as expected in September; they currently remain well below the five-year average and the same period in 2025. As a visible indicator, benzene port inventories are somewhat representative of the widespread low inventories in the industry. After several consecutive months of high prices and production cuts, and with expectations that supply would recover from August, the market had generally believed that benzene prices would fall from late August as supply recovered. Therefore, both benzene and downstream industries maintained low inventories, waiting for low-priced purchasing opportunities. After the Middle East dispute intensified, this expectation was also broken, forcing the market to accept high-priced spot cargoes to maintain production.
In summary, this round of Middle East geopolitical conflict caused a broad rise in crude oil. While directly driving benzene prices, it also shattered expectations of benzene supply recovery and inventory building; therefore, benzene price gains outpaced crude oil in some phases.
Looking ahead, the Middle East geopolitical conflict is unlikely to last. Crude oil prices pushed up by it face significant downside risk; if crude oil corrects quickly, benzene will follow lower.
However, as the Middle East situation remains volatile and the initiative gradually shifts from the U.S. to local Middle Eastern actors, the market’s earlier hope for a short-term recovery of the Strait has shifted to low probability. As a result, the current difficulty in securing crude oil in China is unlikely to be resolved quickly, and the outlook for building benzene inventories is also far from optimistic. With domestic supply in September–October falling short of expectations, even if benzene prices follow crude oil lower, they will have some resilience against declines and rebound momentum from downstream restocking after the drop. In the short term, while tracking crude oil, prices are expected to maintain a relatively high benzene-to-crude ratio and trade in a high range.
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