Europe naphtha weakens on reduced demand

18 April 2012 12:59  [Source: ICIS news]

LONDON (ICIS)--The European naphtha market has weakened because of lower demand from both the petrochemical industry and the gasoline sector, a trader said on Wednesday morning.

This is despite lower crude oil values dampening naphtha prices.

At 10:00 GMT the May naphtha crack spread stood at minus $5.30/bbl (minus €4.03/bbl). This compares with minus $4.80/bbl at 15:30 GMT on 17 April.

“I’d say it’s [the weaker crack spread] mainly [because of] LPG impact,” a trader said. “Propane-naphtha [the propane-naphtha price spread] for May is about $115/tonne.”

Rival feedstock propane has been priced below naphtha for many weeks. The wider this price spread, the greater the incentive for petrochemical buyers to purchase propane instead of naphtha wherever possible.

Gasoline sector demand for naphtha also appears dampened, despite the forthcoming driving season.

“There’s less than expected blending demand,” the trader said. “It feels like the peak blending demand in Europe has already gone.”

This is regardless of gasoline being priced around $100/tonne above naphtha. In theory, this should encourage the purchase of naphtha for gasoline blending.

“I think the overall demand for gasoline is lower,” the source said. “I think it’s a combination of high prices and more efficient cars, at least for the US.”

Reduced demand from the gasoline industry could significantly impact the naphtha market.

“That’s [gasoline demand] the only thing keeping nap where it is,” the trader said. “It’s certainly not petchem demand.”

While the European naphtha market is currently balanced, it is expected to lengthen, particularly after the refinery maintenance period has ended.

“For the moment, it’s balanced, but arbs [out of Europe] are closed, and with current propane-naphtha [price] levels, I wouldn’t be surprised to see a nap stock build pretty soon. Overall the market is a little weaker indeed.”

At 11:08 GMT, June Brent crude oil was trading at $117.69/bbl.

At 15:30 GMT on 17 April, it was at $118.59/bbl.

$1 = €0.76

By: Jo Pitches
+44 208 652 3214

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