10 August 2012 11:54 [Source: ICIS news]
LONDON (ICIS)--While climbing crude oil values have driven European naphtha prices upwards since late June, a variety of factors influencing the naphtha range now suggest prices are likely to remain stable for the next few weeks, sources said this week.
“Overall, I suspect they will stay stable,” a producer said on Friday.
“Yes, I would guess that naphtha prices are more likely to stay steady,” a trader said on 9 August.
With Brent crude oil prices the main influencing factor on naphtha values, the trader added: “To be honest, with crude ticking up now at $112–113/bbl and still strengthening, the [naphtha] flat price will need some correction because this will kill any petchems margins.”
On the same day, a broker agreed that, unless any significant events occur in the meantime to influence Brent crude values, naphtha prices are likely to remain relatively stable until the middle of next month.
“In mid-Sep, there will be a critical vote in Germany and elections in the Netherlands. That could have some serious impact on the oil price should the outcome be that Germany rules the support to Greece illegal, and [the] Dutch election [does not] favour any further financial help,” said the source.
Various other factors are also playing a part in influencing the naphtha range.
The European market has been supported by the stronger Asian market during recent weeks.
As reported by ICIS on 8 August, around 500,000–700,000 tonnes of naphtha from northwest Europe and the Mediterranean are expected to arrive in Asia in August and September. The majority of this is heavy full-range naphtha, which is currently sought by Asian buyers.
During recent days, the European crack spread has strengthened – and exerted upward pressure on prices – on the prospect of further European cargoes being booked for the east.
On Friday morning, the September crack spread had strengthened to minus $6.90/bbl, compared with minus $7.95/bbl on Monday.
However, while many of the cargoes that have headed east have been absorbed into the Asian market, the European trader added on 9 August that this may not last:
“The east might not absorb more than what they are receiving – 1.5m tonnes have so far been sent from Europe in July/Aug. A lot of cargoes are going east, but some of them are unsold. The east-west [price] spread is coming off, from $19/tonne last week to $13/tonne this week, and I’m not that sure that the east will keep pulling barrels.”
This uncertainty regarding the strength of the Asian market seemed reinforced on Friday, when ICIS reported that Asia’s naphtha prices are likely to go on a rollercoaster ride, with gains in crack spreads expected to be capped by weak petrochemical demand and healthy supply.
Of further support to European naphtha prices during recent days has been a fire at Chevron’s refinery in Richmond, San Francisco, which has led to speculation that, in the midst of the US driving season, this could leave the US short of gasoline. In turn, this could increase requirements for European gasoline, and gasoline blending components such as naphtha.
However, the initial prospect of boosted demand now seems uncertain. US gasoline requirements during this year’s driving season have been weaker than previous years. Furthermore, US gasoline stocks are plentiful.
“The gasoline [possibility of increased demand for blending components] might just be sentiment,” the trader said on 9 August. “The US are still long on gasoline as well, so it will all be about the length of the works on this refinery”
Currently, the strongest support for naphtha prices appears to be increasing values for rival feedstock liquefied petroleum gas (LPG).
“LPG is pulling nap,” the trader said on 9 August. “The North Sea [refineries] is going into maintenance, and no LPG has been stored yet for the winter.”
The price spread between propane and naphtha has narrowed to only $30/tonne (€24/tonne), giving the latter the clear advantage. The source confirmed that petrochemical buyers are opting for naphtha rather than propane wherever possible.
Overall the trader concluded: “The NWE [northwest Europe] picture is quite sluggish and long, with a lot of different grades around. I would be careful in being too bullish about nap, but I would also be careful in being bearish either, as the LPG seems very strong and could pull with it.”
($1 = €0.81)
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