Feedstocks: Naphtha prices bottom out

25 June 2012 00:00  [Source: ICB]

US Gulf spot naphtha prices jump, boosted by demand from Venezuela's PDVSA

Asian naphtha prices reversed 15 weeks of declines, but the rebound may be short-lived as a result of increased availability of spot cargoes from India and the Middle East, while demand from petrochemicals has remained subdued and the swing to using LPG is still active.

The naphtha crack spread versus August Brent crude futures recovered to $23.57/tonne on 15 June, after hitting a three-and-a-half year low of $3.27/tonne on 13 June, when naphtha prices for second-half of July loading also hit a 20-month low at below $740/tonne CFR Japan.

News of the restart of Formosa Petrochemical Corp's No 3 cracker did lift sentiment, but FPCC, usually the largest spot buyer in Asia, does not yet need to buy because of ample stocks from previous purchases for May to June loadings.

Softer prices did not have a significant impact on demand for European naphtha, particularly as an oversupply and muted interest in the product in Asia reduced opportunities to send volumes east. This resulted in the European market lengthening further. However, participants had not noticed any distressed cargoes. It was thought that the contango price structure encouraged buying for storage, to sell at a later date.

Despite a relatively wide East-West July price spread, the arbitrage to Asia was closed in practical terms because of the weakness there. An arbitrage to the US was only open for specific grades. Gasoline blending absorbed light grades of naphtha. However, gasoline consumption has declined from previous years, and naphtha volumes heading to the US have consequently lessened.

Petrochemical interest in naphtha remained minimal, partly because of reduced cracker operating rates stemming from lower demand for end-products, and partly because of ongoing cheaper prices for rival feedstock propane.

US Gulf spot naphtha prices jumped on 13 June, countering lower spot gasoline prices, boosted by demand from Venezuela's state-owned Petroleos de Venezuela SA (PDVSA), which issued a new tender for 400,000bbl of naphtha.

Heavy naphtha trades were assessed significantly stronger in spot market trades, moving higher because of strong gasoline prices.

Crude prices continue to weaken as the ongoing eurozone debt crisis raises concern over demand for oil.

Author: Sheau Ling Ong Jo Pitches

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