Europe naphtha firms on Libya, downstream markets, US demand

01 March 2011 14:05  [Source: ICIS news]

LONDON (ICIS)--The European naphtha crack spread has strengthened as a result of concerns about the ongoing unrest in Libya, higher prices of downstream products and strong demand from the US gasoline sector, sources said on Tuesday.

Recent hikes in prices of naphtha cargoes, driven by rises in crude oil prices, had to some extent been kept in check by a weakening crack spread. This was because the naphtha cargo market was oversupplied and there were fears that high prices would affect demand.

While still weak, the crack spread began to strengthen slightly despite rises in Brent crude oil prices that have resulted from concerns about the unrest in Libya.

On 28 February, April Brent crude oil was at $111.90/bbl while the crack spread was at minus $5.50/bbl. Later that day, April Brent had climbed to $112.88 and the crack spread had strengthened slightly to minus $5.25/bbl.

On Tuesday morning, while Brent remained above $112/bbl, the crack spread had strengthened further to minus $4.90/bbl.

“The market is tight in the front here volume-wise, so I think the crack reacts a bit to that,” a producer said.

The situation in North Africa and the Middle East had to some extent increased demand for spot naphtha.

“There are concerns about the Libya unrest, and the bad weather closing ports there,” a trader said.

In addition, March contract prices for derivatives ethylene and propylene settled up from the previous month, increasing the incentive for the petrochemical industry to crack naphtha.

The March ethylene contract settled at €1,195/tonne ($1,660/tonne) FD (free delivered) NWE (northwest Europe), an increase of €60/tonne from February.

The March contract for propylene rose by €80/tonne from February, settling at €1,185/tonne FD NWE – the third consecutive record high since ICIS records began in 1986.

Moreover, demand for naphtha from US gasoline blenders has improved. “The US took more than half a million tonnes of naphtha in February,” said a source.

Furthermore, with the US summer driving season looming, demand for gasoline – and therefore naphtha – is expected to remain strong.

Stronger demand for naphtha also comes at a time when the product's supply has been restricted due to refinery turnarounds in Europe.

“The maintenance period has definitely tightened the market too,” added a trader.

At 12:15 GMT the naphtha cargo range was at $953-961/tonne CIF (cost, insurance and freight) NWE. At the same time, April Brent crude oil was at $112.74/bbl.

Read Paul Hodges’ Chemicals and the Economy blog

By: Jo Pitches
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