FocusEurope naphtha price hikes could damage demand

23 August 2012 13:15  [Source: ICIS news]

By Jo Pitches

BASF cracker at AntwerpLONDON (ICIS)--Further price hikes for European naphtha could continue to disrupt already-weak demand, while volatile crude oil values make the outlook difficult to predict, sources said this week.

The European naphtha range has been driven upwards by close to $300/tonne in the past two months.

At 10.00 GMT on Thursday, October Brent crude oil was at $116.23/bbl, the September crack spread at minus $7.30/bbl and the naphtha range was assessed at $965-967/tonne CIF (cost, insurance and freight) NWE (northwest Europe).

On 22 June this year, August Brent crude oil was at $90.42/bbl, the July naphtha crack spread at minus $13.80/bbl, and the naphtha range assessed at $683-691/tonne CIF NWE.

“That is my understanding,” a trader replied when asked if these current inflated prices are likely to deter buyers.

When asked whether the crack spread needs to soften to dampen these hikes, the source said: “Yes it should, especially with crude at $116.25/bbl today.”

At least some participants feel that the naphtha refining margin does not properly reflect the condition of the market.

“Nap [naphtha] is strong only on paper and in the window,” the trader said. “Crude keeps ramping up, and some bull players are supporting a market that should be softer, looking at the physical picture. The arbs are closed to the east and the US, petchems are not showing any demand. Gasoline is strong but not pulling any nap.”

A second trader said: “They [the petrochemical sector] seem rather quiet if you ask me.”

A broker said on Wednesday: “The east is realising it’s going to get more than enough naphtha to cover short and medium term requirements.”

ICIS reported on Thursday that open-spec naphtha prices in Asia topped $970/tonne. A narrow price spread between the east and west lessens opportunities for any arbitrage.

With few outlets for European naphtha, the market is said to have lengthened from last week.

“Yes, physically there are plenty of barrels out there,” the first trader said.

Worse still, while opportunities to relieve Europe’s existing length are scarce, open arbitrages into Europe threaten to lengthen the market further.

“There is a [vessel from] Cartagena and [one from] a La Coruña heading north, and more barrels coming from Russia. The north [northwest Europe] is getting longer and longer,” the trader said.

While around two vessels are thought to recently have been booked for Brazil, no further demand has been seen from the country.

The volatility of Brent crude oil prices means that the outlook for naphtha values is uncertain.

“Yes, [naphtha prices are] very difficult to predict,” the trader said.

The second trader added: “I feel it is in a wait and see mode.”

By: Jo Pitches
+44 208 652 3214

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