FocusNaphtha hits record on surging crude

11 March 2008 17:10  [Source: ICIS news]

By Kawai Wong

 

LONDON (ICIS news)--European open-spec naphtha cargoes hit another record high on Monday on the back of surging crude oil values, which hit new record highs on Tuesday.

 

The latest in a string of record high trades saw Vitol sell 12,500 tonnes Koch at $886.25/tonne CIF (cost, insurance and freight) NWE (northwest Europe), which exceeded the previous record high set on Friday 7 March at $885/tonne.

 

The trade represented the most expensive 12,500 tonnes of open-spec naphtha sold in Europe and the high was driven by crude oil futures and fears over a slowdown in the US economy.

 

In recent weeks, traders have described European demand for naphtha as lacklustre due to high outright prices.

 

The petrochemical sector and gasoline market, the key supporting markets, have both been reluctant to buy naphtha due to high costs.

 

One London-based naphtha trader said the petrochemicals sector would only buy small volumes and only when it was necessary to cover their commitments.

 

On the gasoline side, blending using naphtha was simply uneconomical as naphtha was trading above or equal to gasoline in recent months. Moreover, there was little opportunity for exporting European gasoline to the US since the region was already well supplied.

 

The crude market, which has been the driving force behind record high naphtha prices, was in turn affected by more macro-economic variables, largely due to the US.

 

The first and probably the most important issue facing the US is a weakening economy. The latest statistics chart slower economic growth, a weakened labour market and a weaker currency.

 

The weakness of the US dollar against the euro and the pound makes buying US-priced goods relatively cheaper and real prices fall. Investors are attracted to commodities such as crude priced in US dollars and spurred by concerns over inflation.

 

The Federal Reserve has already cut base rates from 4.25% to 3% since the beginning of the year to try to stimulate the economy. And other macro-economic signs are weak.

 

According to the US Labor department, US employers cut 63,000 jobs in February, the biggest cut in five years.

 

The Federal Reserve also lowered its economic growth forecast in late February to a range of 1.3% to 2%.

 

Aside from the faltering US economy and the possibility of a global slowdown, crude stocks in the US fell unexpectedly last week, according to the Energy Information Administration (EIA).

 

On 5 March, the EIA reported that crude oil stocks had fallen by 3.1 million barrels, opposed to a forecast of a 2.4 million barrel increase.

 

Its announcement helped push April NYMEX light sweet crude futures up by about $1.50/bbl.

 

The 5 March OPEC meeting saw the cartel announce that production levels would remain unchanged. Current highs in crude oil were driven by speculative investors rather than actual supply and demand fundamentals, it said.

 

However, there was some downward pressure being heard in the market.

 

The International Energy Agency (IEA) has revised its forecast for global oil product demand in 2008, down by 100,000 barrels per day (bpd) to 87.5m bpd.

 

The revision was a result of weaker than expected fourth quarter 2007 OECD demand and also lower than expected deliveries in January 2008.

 

However, on Tuesday, 11 March, the IEA added despite the slowdown in the world’s leading economies that will curb their thirst for oil, the outlook was for continued high prices.

By: Kawai Wong
+44 20 8652 3214

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