Europe naphtha climbs $19/tonne on stronger crack spread

18 March 2011 13:59  [Source: ICIS news]

LONDON (ICIS)--The European naphtha cargo range climbed $19/tonne (€13/tonne) due to a firmer crack spread and rises in crude oil prices stemming from fears of violence in the Middle East further affecting supply, sources said on Friday.

At 11.00 GMT, the naphtha cargo range was assessed at $965-973/tonne CIF (cost, insurance and freight) NWE (northwest Europe), while May Brent crude oil was at $115.57/bbl. The crack spread had strengthened to minus $7.1/bbl.

This compares to the afternoon of 17 March, when the naphtha cargo range was at $946-954/tonne CIF NWE, May Brent was at $113.76/bbl and the crack spread at minus $7.35/bbl.

On the 14 and 15 March, the naphtha crack spread had softened while Brent crude oil prices fell on fears over the lack of Japanese demand for both oil and naphtha following the massive earthquake and tsunami that hit the country on 11 March. The explosions at the Fukushima Daiichi nuclear plant that followed has worsened fears.

However, by 16 March, news that state forces in Bahrain have cracked down on protestors increased concerns that oil supplies from the Middle East and North Africa will be further impacted. This in turn drove prices upwards, overriding the dampening effects of the Japanese catastrophe.

Despite further crude oil price hikes later in the week, the crack spread continues to edge up, partly due to the European naphtha market tightening.

“Demand for naphtha in Europe is showing in the crack,” a producer said, adding: “A lot of volumes have moved west and I think people in Europe realise that there is not much volume left.”

“Firstly, the crack was going down too fast at the beginning of the week, compared to gasoline and propane. What we’re seeing now is a correction. Secondly, Europe is quite tight. There’s been strong demand from the US,” a second source said.

With the onset of the US driving season, naphtha is in demand for gasoline blending.

For now, concerns about the lack of demand from Japan are on the backburner.

“The Japan situation is still unclear”, the first source said, adding: “It’s not easy to say what the end result will be for the naphtha supply/demand situation.”

At 12.15 GMT, May Brent was trading at $116.30/bbl.

($1 = €0.71)

By: Jo Pitches
+44 208 652 3324

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