Europe naphtha price backwardation unjustified - traders

05 September 2012 14:42  [Source: ICIS news]

By Jo Pitches

LONDON (ICIS)--A steep price backwardation for European naphtha that emerged this week is unjustified because of the the relatively weak condition of the physical market, sources said on Wednesday. 

“Yes, the back[wardation] is still here, with Sep/Oct bid at plus-$16/tonne today,” a trader said.

Backwardation is when current prices are higher than those for future months.

When asked if it was warranted, the source replied: “Not at all. The curve doesn’t reflect the long physical picture. No bids are shown for any barrels in NWE [northwest Europe] or the Med, and cargoes are piling up with no arbs open.”

A second trader also said the backwardation was not justified: “Agree entirely. The current market is all about front games.”

Following concerns last week that the crack spread was too firm, given the physical state of the market, there has been some relief this week as it has started to soften.

At 10.00 GMT the October crack spread stood at minus-$5.55/bbl. This compares with a September crack spread of minus-$3.85/bbl on Monday afternoon.

“Natural correction, I guess,” the first trader said, when asked why the crack spread had softened. “The physical market is long, so the spreads and cracks had to come down, and has still more correction to do.”

The source added that European oversupply has been worsening, although one major company purchased eight cargoes on Tuesday afternoon.

“Vitol bought 100,000 tonnes last night in the window,” the trader said. “Eight 12,500 tonne cargoes, so they might send off the European to the east, even if the arb is closed. It’s still unclear though, this is just my guess.”

When asked what plans were for the cargoes, a source at Vitol said: “Brazil or east. We are working an lr [long range vessel] in the Med as well, and looking for the second in ARA [Amsterdam-Rotterdam-Antwerp].”

Views are mixed regarding petrochemical demand for naphtha.

The first trader said: “Physical demand is not there at all. Even BASF, a petchems end user, is offering nap cargoes to the market.”

A third trader disagreed. “Not [offering] to me. I bid them for the 20- 24 [September cargo] they bought, they didn’t want to sell it. And they are buying Sep/Oct, as are Borealis.”

A source at BASF said: “We were selling some cargoes lately. No further comment.”

Furthermore, the third trader was not convinced of a lack of demand from the petrochemical industry: “Funny, as I sold six cargoes to petchems in the last five days.”

Demand from the gasoline sector remains limited, however. “Gasoline is strong on sentiment, hence on paper, but the blending is not attracting any phys barrels either,” the first trader said.

By: Jo Pitches
+44 208 652 3214

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