How much longer must low-grade alkylated oil remain dormant?

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The alkylation oil market has been fluctuating around the 5,000 yuan/ton level for over a month now; there are no signs of improvement, and the market remains at low levels. The alkylation units are operating at a loss, leaving manufacturers facing severe difficulties. And given the market truth that \"after a long decline, prices must rise,\" how much longer before alkylated oils see a turnaround? http://img.sciimg.com/images/1/201512/201512111608355037.png Figure 1: Since the second half of the year, the market for alkylated oils has not shown any signs of strong growth; only around September did prices improve slightly, with the highest price reaching 6,100 yuan per ton. This is far lower than the 7,000 yuan per ton level seen in the first half of the year. Since October, the price of alkylated oil has been on a continuous decline. The market price was at 5,600 yuan per ton in October, while the current average price of alkylated oil is 4,850 yuan per ton, representing a drop of 750 yuan per ton. The decline in the alkylated oil market has persisted for nearly two months; we will analyze the future market factors. 1. Crude oil seeking a bottom at low levels: http://img.sciimg.com/images/1/201512/201512111604275431.png Figure 2 shows that international oil prices are currently at very low levels; WTI is approaching $35 per barrel, reaching its lowest level since 2015. Although there is currently an oversupply and a strong dollar remains a significant negative factor for the crude oil market, given the current low levels of crude oil and the support provided by cost levels, there is little room for oil prices to fall further. In the later stage, market participants held two views: one was a more pessimistic one, suggesting that the surplus in crude oil supply would persist, and low prices on a long-term basis would become the new normal for the international oil price market. Another perspective is relatively positive: driven by current cost factors, crude oil has gradually reached bottom levels, and as speculators look for opportunities, a rebound trend is bound to occur. 2. Seeking a turning point for demand recovery: Zhuochuang believes that the demand for alkylated oil is currently in a low-season period; on one hand, there are high levels of social inventory of alkylated oil, and on the other hand, gasoline consumption is slow. It will be difficult for the market to see a significant recovery in the short term. Zhuochuang believes there are two potential turning points for a recovery in the near future: one is on New Year’s Eve, and the other is on Chinese New Year’s Eve. The possibility of a recovery in the oil product market on New Year’s Day is relatively low; moreover, with the upgrade of gasoline standards, it is unlikely that there will be large amounts of oil stored by downstream users. On the eve of the Spring Festival, gasoline consumption at the retail level is expected to increase, as downstream users stock up in advance, resulting in relatively high demand. 3. There is also pressure on the supply of alkylated oil resources. As shown in Figure 3 (http://img.sciimg.com/images/1/201512/201512111609243808.png), the current operating rate of alkylation plants in China is 48.29%, with a daily production volume of alkylated oil amounting to 17,260 tons. At present, the alkylation units in Henan Province are affected by the decisions of the SCO ministers of economy; these units, with a total processing capacity of 1.1 million tons, are currently shut down, though there are expectations that they will resume operation in the future. In other words, by late December, the operating rate of the alkylation unit is expected to recover to above 50%, yet there remains pressure on the supply of alkylated oil. Overall, it is somewhat difficult for the alkylated oil market to break through its low-level stagnation phase in the short term. In the later stage, as demand picks up again, the alkylation oil market may see a turnaround. In other words, the low-level incubation period for alkylated oils ranges from as short as 10 days to as long as 1 month. Zhuochuang believes that it is likely that the turning point for the resurgence of alkylated oils will occur around mid-January.