Gasoline lull, lack of arb weigh on Europe naphtha

20 November 2007 13:02  [Source: ICIS news]

LONDON (ICIS news)--Demand for naphtha has fallen in northwest Europe on a lull in the gasoline sector and closed arbitrage options, traders said on Tuesday.


One London-based trader said that, with a number of recent record highs, the naphtha market has priced itself away from gasoline production, leading to a fall in demand, one London-based trader said.


The gasoline market, which normally experiences a dip in the market during the winter months, has been pressured by falling spot prices as well as production costs.


Benchmark 10ppm gasoline barges were traded as low as $805/tonne (€545/tonne) FOB (free on board) AR (Amsterdam, Rotterdam) last week, with trades averaging around $820/tonne.


Spot prices have since gained, with trades being heard at $823/tonne and $826/tonne, although these figures still contrast with those struck at around $860/tonne at the beginning of November.


Arbitrage options for the European naphtha market were also reported to be closed to both east and west.


In November 2006, European traders were busy working on a Europe and Mediterranean arbitrage window to Asia.


In contrast, Indian refiners had recently been seen marketing their naphtha to Europe at reduced premiums.


However, despite Indian refiners offering material at very attractive prices, no deals were struck in the market in fear of a potential crash in European spot prices by the time material arrives at European shores.


The persistence of naphtha prices remaining at record high levels were driven by crude oil, traders said.


The December crack spread has shown signs of weakening, with the crack spread reported at a $0.40-0.50/bbl premium over Brent crude having reached $1.25/bbl last week.


The spread slipped into negative territory briefly at the end of October and regained lost ground and it exceeded $10/bbl in early May this year.


($1 = €0.68)

By: Kawai Wong
+44 20 8652 3214

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