Al Root

With oil markets upended by the conflict in Iran, commodity chemicals -- which are derived from oil and natural gas -- could see heightened volatility.

Higher oil prices, however, can benefit some players. The question is how long that advantage lasts.

Benchmark oil prices were up 7.5% in early trading on Monday. U.S. domestic natural gas prices were up about 3.5%. The oil-to-natural gas ratio is key for many U.S. chemical companies, which tend to use natural gas as feedstock, while Asian and European chemical makers generally rely more heavily on oil.

Iran developments "reinforce our constructive view on commodity chemicals," wrote Alembic analyst Ahmed Hassan on Saturday, adding that North American producers are well-positioned.

High oil prices, which push up plastics prices, and relatively low natural gas prices can lead to strong margins for U.S. producers. Dow Inc. and LyondellBasell are skewed toward gas-based U.S. chemical production and stand to benefit if that spread widens.

"One [price] impact is inventory-driven," says OPIS, the news and data energy service from Dow Jones. "Short-term, buyers may build inventory as prices increase, catalyzing a short-lived uplift in demand." Higher freight rates in the Middle East would also provide European and U.S. producers with a short-term competitive benefit.

Of course, a lot of chemical capacity resides in the Middle East. Some of that might go offline, further tightening chemical markets.

While the outlook for Dow and Lyondell is improving, there are risks to consider. "While a sustained upward move in oil prices could potentially support more pricing across pockets of the commodity and intermediate chemicals complex," there are mitigating factors, wrote Citi analyst Patrick Cunningham on Monday. Most problematic, producing goods from oil amid depressed demand would lead to larger losses, despite higher chemical prices.

Investors will have to watch developments closely. Dow and Lyondell are two stocks to keep an eye on as events unfold.

Dow stock was down 1.3% in premarket trading, while S&P 500 and Dow Jones Industrial Average futures were both off about 1.1%. Lyondell stock was down 1.2%.

Coming into Monday trading, Dow and Lyondell shares were down 19% and 26%, respectively, over the past 12 months.

Write to Al Root at allen.root@dowjones.com

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March 02, 2026 10:16 ET (15:16 GMT)

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