Hopes of some relief from Europe naphtha oversupply

04 January 2013 16:05  [Source: ICIS news]

LONDON (ICIS)--Following many weeks of scant arbitrage opportunities to relieve Europe’s building naphtha oversupply, the prospect of moving volumes out of the region now looks a little more promising, sources said this week.

An arbitrage is now open from the Mediterranean to Asia.

“Yes, it’s wide open from the Med,” a trader said on Thursday. “Not quite from NWE [northwest Europe] yet, though.”

When asked whether an arbitrage would likely open from northwest Europe to the east, the source replied: “Some barrels will move that way, I’m sure....But more likely they will go to the US for [gasoline] blending”

Regarding the possibility of the aforementioned arbitrage opening, on Friday a second trader said: “I’m checking the levels. Not as yet, I think.”

On Friday morning, the January east-west price spread stood at $9.50/tonne. While dependent on factors such as freight rates, a spread of $15-20/tonne is usually deemed necessary for an arbitrage to open to Asia.

However, the consensus is that volumes are likely to be moved east even if the arbitrage fails to open fully.

“I think we will push more barrels to the east than to the US,” the second trader said on Friday. “That is my personal view.”

Some participants have heard of Asia having booked a third less naphtha for the first quarter of this year than they did during the same period of 2012. However, the second trader explained: “I think the absolute volume is not so important. For me it’s about supply from AG [the Arabian Gulf] and India versus [Asian] demand.”

With the European naphtha market structurally long, it has become increasingly dependent on outbound arbitrages to relieve the oversupply.

Furthermore, with US petrochemical requirements for naphtha now much reduced due to the States' growing preference for shale gas, much hinges on moving Europe's surplus to Asia.


By: Jo Pitches
+44 208 652 3214



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