Because in the process of refining and cracking, the ratio of raw materials to output is fixed, under the incentive of profit expansion, refineries will expand their production capacity, thus buying more crude oil and producing more naphtha, which will increase the demand for crude oil, lead to an increase in the price of crude oil, increase the supply of naphtha, lead to a decrease in its price, and finally narrow the price difference to a reasonable level.
If the profit margin of the refinery shrinks or even loses money, the refinery will reduce its production capacity or even stop production. So as to reduce the purchase of crude oil, even the sale of crude oil in stock, reduce the output of naphtha, and purchase naphtha from the market to fulfill the previous sales contract. In this way, the increase of crude oil supply in the market leads to the decrease of crude oil price and naphtha supply, which leads to the increase of its price, and finally increases the price difference until the profit margin of the refinery is reopened.
Due to the existence of refineries and their cracking hedging business in the futures market, the cracking price fluctuation of crude oil and naphtha exists in a theoretically reasonable range. When this reasonable level is broken, the refinery will take corresponding actions to promote the cracking diffusion back to the normal level.