US naphtha deep discount to gasoline continues

26 March 2012 16:26  [Source: ICIS news]

HOUSTON (ICIS)--US Gulf naphtha’s deep discount to Gulf coast gasoline will likely continue as traders make the annual switch to basing naphtha prices off a more expensive summer gasoline blend, a broker said on Monday.

The discount for spot heavy naphtha is 15.50 cents/gal under spot Gulf coast gasoline, and the discount will only deepen in the coming days, said the broker. The price of spot Gulf coast summer gasoline on 23 March was $3.24/gal. The spot naphtha price was $3.0850/gal.

When traders start basing prices off a more expensive summer gasoline blends, naphtha will likely trade at deeper discounts in an effort to prevent a jump in spot naphtha prices, said the broker.

Spot naphtha traders bargain by pricing naphtha at a discount or premium to spot US Gulf gasoline.

Monday was the first day for 2012 naphtha began trading against a pricier summer blend, which is about 7 cents/gal more expensive than the current summer blend that spot naphtha is trading against, said the broker.

To prevent a jump in spot naphtha prices on Monday, the discount for heavy naphtha to the pricier summer blend would need to deepen by 7 cents, or 22.50 cents/gal under gasoline.

The broker said naphtha discounts likely would not fall that drastically, so the more expensive gasoline will also lift the price of naphtha.

Another factor which has caused the price for heavy naphtha to remain weak is the lack of arbitrage from the US Gulf to Asia, the broker said.

In the past two to three weeks only, three cargoes shipped from the Gulf coast to Asia, said traders. The week ended 9 March, Asia saw naphtha prices at a near 4-year high. Naphtha prices in Asia have since dropped.

Accordingly, the closed arbitrage to Asia has reduced demand for naphtha and weakened prices.

In early to mid-February, heavy naphtha was at a discount of 2.7-9.0 cents/gal under spot gasoline.

At the start of March, spot naphtha prices were less than $2.90/gal, about 17 cents/gal lower than current spot naphtha prices.

By: Sheena Martin
+1 713 525 2653

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