Corrected: Europe naphtha remains tight despite fears of oversupply

06 April 2011 17:08  [Source: ICIS news]

Correction: In the ICIS news story headlined “Europe naphtha remains tight despite fears of oversupply” dated 6 April 2011, please read in the 17th paragraph …to come back soon as mogas-nap … instead of … as soon as mogas-nap…. A corrected story follows.

LONDON (ICIS)--The European naphtha cargo market remains short despite recent fears of oversupply, sources said on Wednesday.

“Europe is tight right now,” a trader said.

The continued tightness is due to a combination of refinery turnarounds and the departure of several naphtha cargoes from Europe to New York and Brazil during the last two to three weeks.

Fears that the market would become oversupplied arose after the 11 March earthquake in Japan, which reduced the country’s demand for European naphtha.

In addition, there were the lengthening effects of a closed arbitrage to Asia and lacklustre demand from the petrochemical sector, which all remain ongoing.

A source said last week that whether the European naphtha market would become long hinged on whether an arbitrage was open to the US.

The forthcoming US driving season has recently increased demand for naphtha from Europe. However, the arbitrage westward has been changing over the past few days.

“It is so volatile,” a trader said on 30 March.

A second trader added: “Much depends on the grade of naphtha in question. Heavy grades are in demand for gasoline blending, but they only account for around 5-10% of the naphtha market.”

At the end of March, many sources thought the market was indeed becoming oversupplied, as demand from the west petered out.

On 30 March, a trader said that the market looked like it was beginning to get longer.

On 5 April, the west still showed little interest in European naphtha.

“There’s not much demand from the US,” a source said. “It’s still digesting the last wave of [arbitrage].”

On Wednesday, however, the market's lengthening appeared to have reversed, with several sources saying it is in fact tight.

“I would not call a market with a $15/tonne backwardation long,” a trader said.

Furthermore, demand from the west is expected to return soon because of favourable margins.

“I expect [the US] to come back soon as mogas-nap [the spread between gasoline and naphtha] is wide,” the trader added.

According to ICIS data, on 5 April naphtha was at an average of $1,051/tonne CIF (cost, insurance and freight) NWE (northwest Europe), while premium-unleaded gasoline had an average price of $1,089/tonne CIF NWE.

However, despite the current market tightness, a lengthening of the market could still not be ruled out.

Some sources said they heard that naphtha could soon start moving into Europe from the east.

“First it could be Red Sea material that’ll stop going to Asia,” the source continued. “Suez, Rabigh, then maybe some Middle East or Indian barrels. But from Asia it’s unlikely.”

“It is tight in the front but could get long if east material arrives,” the trader added. “But that would be at the end of April.”

At 14:20 GMT, the naphtha cargo range was assessed at $1,0441,052/tonne CIF NWE. April swaps were assessed at $1,0321,034/tonne.

Read Paul Hodges’ Chemicals and the Economy blog

By: Jo Pitches
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