15 May 2012 12:03 [Source: ICIS news]
LONDON (ICIS)--European naphtha refining margins weakened further on Tuesday morning as a result of a naphtha oversupply and poor demand in Asia, a market source said.
At 09:30 the June crack spread fell to minus $10.60/bbl (minus €8.27/bbl). This compares with a spread of minus $9.80/bbl at 15:30 on 14 May.
“Yes, that’s what took [the crack spread] down today,” a producer said, when asked if softer Asian prices stemming from weak demand and excess supply were responsible.
Weakness in the Asian market is unwelcome news for the oversupplied European market. The region has been suffering poor naphtha demand for weeks, and market participants had been hoping for an arbitrage to open to the east to relieve some of the growing length.
“[Arbitrages] have to open,” a buyer said on 4 May. “Otherwise the oversupply will build.”
An outlet is particularly required now that some European refineries are starting to come back online following their maintenance periods.
So far such an outlet has failed to materialise, despite European naphtha prices falling by around 15% in the month to 9 May, on the back of lower Brent crude oil prices and a weakening crack spread. Prices have softened further since that date.
Nevertheless, requirements for gasoline blending components such as naphtha are limited, despite the forthcoming driving season. US gasoline consumption is lower than that recorded in the same period last year, and the naphtha arbitrage to the US remains firmly shut.
Furthermore, with an ongoing wide price spread between naphtha and rival feedstock propane, petrochemical buyers continue to opt for the latter wherever possible.
($1 = €0.78)
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