Europe naphtha falls $21/tonne on crude drop, weaker crack spread

08 March 2011 13:43  [Source: ICIS news]

LONDON (ICIS)--The European naphtha cargo range has slipped by $21/tonne as a result of lower crude oil prices and a weaker crack spread, market sources said on Tuesday.

At 11:15 GMT on Tuesday, the naphtha cargo range was assessed at $981-989/tonne CIF (cost insurance and freight) NWE (northwest Europe), while the crack spread was at minus $5.10/bbl and April Brent crude oil at $115.08/bbl.

However, at 16:30 GMT on the previous afternoon, the naphtha cargo range was $1,002-1,010/tonne CIF NWE, the crack spread was at minus $4.40/bbl and April Brent was at $116.79/bbl.

Brent crude oil prices fell in response to news that OPEC oil producers were discussing proposals to boost output to help counteract the shortage of oil from Libya, thereby soothing anxieties over disruptions to supply.

The crack spread changed direction again, in line with crude oil prices.

Last week, tightness in the European naphtha market had caused the crack spread to strengthen despite rises in crude oil prices.

This was because, unlike the previous two weeks, there was no need to protect demand in an oversupplied market by tempering crude-driven increases in naphtha prices with a weaker crack spread.

This week, the market was less tight, rekindling the desire to counteract the severity of further crude-driven naphtha price hikes by softening the crack spread.

“Let's say the market has stabilised,” a trader said. “Cargoes would start to accumulate in Europe unless something happened.”

There were several factors that eased the market tightness.

First, demand for Mediterranean naphtha had weakened.

Last week, the Mediterranean market experienced significant interest because of reduced supply from Libya. According to market participants, Mediterranean cargoes headed to regional destinations, rather than heading to northwest Europe. This exacerbated tightness and supported prices.

“The Lybian situation is still uncertain, but the [Mediterranean] is better covered this week,” the trader said.

This was because most buyers were thought to have now secured the material they needed.

Another factor easing the tightness was petrochemical buyers’ ongoing preference for liquefied petroleum gas (LPG).

“LPG is still very attractive for petchems,” the trader said.

At the end of last week, propane was priced $95/tonne below naphtha, while butane was around $50/tonne lower.

A lack of arbitrage opportunities were also threatening to lengthen the market.

A second source added: “The market is seeing [that no arbitrage] is open to the US or to Asia. Therefore the [naphtha] cracks are naturally easing off despite crude movement, as crude is too volatile to call.”

At 13:00 GMT, April Brent crude was trading at $114.16/bbl.

Read Paul Hodges’ Chemicals and the Economy blog

By: Jo Pitches
+44 208 652 3324

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