Material Insights · Understanding the Material World

Crude oil and Ethylene

Outside the US and the Gulf, much ethylene is cracked from crude-derived naphtha, so oil sets its cost; naphtha crackers yield as little as 30% ethylene and are the high-cost supply, now squeezed by Asian overcapacity.

Crude oil (energy) and Ethylene (chemical): 4 relationships.

How they are linked

1. Naphtha cracking

Physical flow · Strong · Crude oil to ethylene, through naphtha

Outside the US and the Gulf, much ethylene comes from steam cracking naphtha, a light fraction of crude oil, so crude sets much of its cost.

  • as little as 30% ethylene yield from naphtha cracking
  • 857 kt a year design ethylene capacity of IOCL's Panipat naphtha cracker, commissioned 2010

Because naphtha cracking yields as little as 30% ethylene, it also makes propylene, butadiene and aromatics, and its margin depends on the whole slate. In India, IOCL's Panipat unit is a naphtha cracker of this kind.

Sources: US Energy Information Administration; Indian Oil Corporation

2. Naphtha against ethane

Substitution · Strong · Ethane competes with oil-based naphtha as cracker feed

Ethane from natural gas yields far more ethylene than naphtha and is usually cheaper, so the oil to gas price ratio decides which crackers set the world price.

  • more than 80% ethylene yield from ethane cracking

When crude is high relative to gas, ethane crackers in the US and Gulf earn much more than naphtha crackers, and naphtha-based Asian and European plants become the marginal, highest-cost supply. When oil falls, the gap narrows and naphtha crackers recover.

Sources: US Energy Information Administration; US Energy Information Administration

3. Asian cracker margins

Cost and price · Strong · Ethylene to naphtha spread

Naphtha crackers earn the gap between olefin prices and naphtha, and a wave of new Chinese capacity has kept that gap thin.

  • $236.75/t Asian ethylene to naphtha spread, 10 September 2025
  • more than 10 Mt/y ethylene capacity China added in 2024 to 2025

Asian olefin margins have been negative for several years and are not expected to turn positive until after 2030; the September 2025 spread was below the roughly $250/t integrated producers need. South Korea's government has advised producers to cut 2.7 to 3.7 Mt a year of ethylene capacity, a sign of how deep the squeeze is for naphtha-based plants.

Sources: S&P Global Commodity Insights

4. Price link: feedstock cost

Cost and price · Strong · Both ways, crude leads by about a month

Naphtha is the main feed for ethylene outside the US, so crude moves feed through to the petrochemical price index.

  • 0.52 monthly change correlation
  • 0.89 12-month change correlation
  • 1.15 fitted elasticity

Yearly moves correlate at 0.89 with an elasticity above one, so petrochemical prices have swung slightly more than crude. The link has loosened in recent years, to about 0.33, as cheap US ethane gained share and oversupply weighed on Asian prices.

Sources: Material Insights (World Bank, FRED, IMF data)

For investors

Key learnings

  1. Naphtha crackers yield only about 30% ethylene against over 80% for ethane, so they are the high-cost supply when oil is dear relative to gas.
  2. Asian cracker margins have been negative for several years after China added more than 10 Mt a year of capacity, with recovery not expected before 2030.
  3. Ethylene prices follow crude closely over a year, at 0.89 correlation, but oversupply can hold margins down whatever oil does.

What to track

  • Asian ethylene to naphtha spread: A sustained widening signals recovery for naphtha crackers (Daily · S&P Global Platts, ICIS)
  • Brent to Henry Hub price ratio: A higher ratio widens the advantage of ethane crackers over naphtha (Daily · ICE, CME)
  • Cracker closures and run cuts in Japan and Korea: Capacity exits are the path out of oversupply (Quarterly · company announcements)

For policymakers

Key learnings

  1. Naphtha-based crackers, such as IOCL's at Panipat, carry crude price risk into plastics and packaging costs.
  2. Global ethylene oversupply makes new naphtha cracker investment risky until after 2030, which matters for India's petrochemical expansion plans.
  3. Countries with cheap gas liquids hold a lasting cost edge, so import tariffs and feed access shape domestic cracker viability.

What to track

  • Naphtha imports and exports: India's balance of cracker feed against export of surplus naphtha (Monthly · PPAC)
  • Polyethylene import volumes: Rising imports signal that domestic crackers cannot compete with cheap Asian or ethane-based supply (Monthly · Ministry of Commerce trade data)

India

IOCL's Panipat naphtha cracker, commissioned in 2010 with 857 kt a year of ethylene design capacity, is an example of Indian ethylene whose cost follows crude oil.

Sources

  1. U.S. ethane exports set a monthly record in March 2023, US Energy Information Administration (2023)
  2. U.S. ethane consumption expected to grow as new petrochemical plants come online, US Energy Information Administration (2022)
  3. APPEC: Asian olefins oversupply may last 3-4 years amid slower capacity growth, S&P Global Commodity Insights (2025)
  4. Polymers: Panipat naphtha cracker, Indian Oil Corporation
  5. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)