In April 2026, US polyethylene prices jumped 30¢/lb in a single month,¹ the largest increase on record, according to LyondellBasell.² Yet the ethane American plants use to make it had barely changed in price.^3,4 Six months later, oil was trading above $125 a barrel and the same plastic hardly moved.^5,6,7 Both moves follow the same rules.

Plastic sits where two markets meet: crude oil and natural gas. Which one matters more depends on where the plastic is made, what it is made from and how much spare capacity the world has. Over the past decade, China has changed that last factor more than anyone.

01 — The RuleOil Sets the Ceiling, Gas Sets the Floor

Nearly every everyday plastic starts as one of two simple molecules, ethylene or propylene. In Asia and Europe, most plants make them from naphtha, a liquid refined from crude oil. In the US and the Middle East, most use ethane, which comes from natural gas. China uses both, and coal and propane too.

Like most commodities, plastic tends to sell at about the cost of the most expensive plant still needed to meet demand. That plant has usually been a naphtha cracker in Asia or Europe, so oil sets the ceiling for prices worldwide. A US plant running on cheap gas therefore does not sell at a cheap “gas price.” It sells at the global, oil-linked price and keeps the difference. As Jim Teague, then chief operating officer of Enterprise Products, put it in 2012, the real American edge is “the price spread to naphtha.”⁸

That reaches US buyers as well. Exports now take 45–50% of US polyethylene output,⁹ so the price American converters pay is set by what producers could earn abroad.

02 — The ExceptionsWhen Plastic Stops Following Oil

Over the long run, plastic follows oil. From month to month, other forces often take over: plant outages, shifts in the gap between oil and gas prices, by-product values, buyers stocking up or running down their stocks, and trade policy. The biggest of all is overcapacity.

Winter Storm Uri, in February 2021, shows what an outage can do. A deep freeze on the Gulf Coast shut an estimated 80–85% of US polyethylene and polypropylene output.¹⁰ Polyethylene climbed to near seven-year highs, and polypropylene to its highest level since at least 2005.¹¹ Scarcity set those prices, not cost.

Overcapacity works the other way, and it has become the norm. When there are more plants than the market needs, prices sink toward the running costs of the cheaper plants and stay there, whatever oil does. Wood Mackenzie says integrated polyethylene margins have been mostly negative since mid-2022,¹² and LyondellBasell put industry margins in 2025 about 45% below their historical average.¹³

03 — The China ShiftFrom Biggest Buyer to Swing Supplier

Much of that overcapacity was built in China. It overtook the US as the world’s largest ethylene producer in 2022.¹⁴ By the end of 2025 it had more than 62 million tonnes a year of capacity, about a quarter of the world total.¹⁵ Between 2015 and 2025, its polyethylene capacity rose from 14.9 Mt to 39.5 Mt, and its polypropylene capacity from 17.4 Mt to 49.0 Mt. Another 7.3 Mt of polyethylene and 5.5 Mt of polypropylene are due in 2026.¹⁶

Because many Chinese plants run on coal, propane or imported ethane, their costs don’t simply track oil. And the more China built, the less it needed to buy from abroad. The change is clearest in polypropylene.

Polyethylene is heading the same way, only more slowly. China still imported more than 14 Mt in 2025, but it also exported a record 1.1 Mt. By April 2026, the gap between its imports and exports was the smallest since records began in 2000.¹⁹ Some reports now call China a net exporter of polyethylene. It isn’t yet, but it is getting close.

The countries that used to supply China have had to find other buyers. Southeast Asia’s polyethylene and polypropylene exports fell by 1.8 Mt, or 37%, in five years.²⁰ The pressure has spread as far as Europe, where high energy costs and aging plants have led to a wave of closures. About 37 Mt of chemical capacity, around 9% of the region’s total, has shut since 2022.²¹

04 — The Stress TestA Record Spike, Then a Fast Fade

The 2026 crisis in the Strait of Hormuz tested all of this at once. Before the conflict, close to 1.2 million barrels a day of naphtha passed through the strait, meeting 60–70% of Asia’s import needs. In March, Middle Eastern naphtha exports fell to less than a fifth of their February level, and the benchmark naphtha price in Japan hit a record $1,207.50 a tonne.²² More than ten Asian crackers cut output or declared force majeure.²³

US plastic prices jumped the most, even though US ethane stayed at around 20–23¢ a gallon^3,4 while Brent averaged $103 a barrel in March, $32 more than in February.²⁴ Polyethylene contracts rose 10¢/lb in March and 30¢/lb in April.^1,25 Because American prices are set against naphtha-based rivals abroad, they rose with those rivals’ costs, and US producers kept the difference. Kevin Mekaru of RTi called the April rise “certainly more of a margin expansion” than a response to higher costs.¹

Then oversupply took back control. A ceasefire in April²⁹ and a mid-June deal to extend it and reopen the strait calmed the market.³⁰ Buyers stopped stocking up, and China’s polyethylene exports in April were almost six times their level a year earlier.¹⁹ US polyethylene contracts fell 15¢/lb in June²⁸ and another 10¢/lb in July.²⁵ Renewed fighting and heavy Asian buying then pushed oil to $116.89 a barrel on average in September and, by mid-October, to about $126 on the EIA’s Brent spot measure and around $134 on the IEA’s Dated measure.^5,6 The two differ because they come from different price reporters at different moments, and in a market this tight, physical cargo prices can move several dollars within days.³¹ This time, US propylene prices didn’t react at all, and polyethylene was expected to rise by only about 3¢/lb.⁷

For buyers, the lesson is not to watch the oil price on its own. The gap between naphtha and ethane, the cost of the most expensive plant and how hard Chinese plants are running all say more about next month’s price.