FocusEurope naphtha demand under threat from weak gasoline, crude

05 April 2013 12:02  [Source: ICIS news]

By Cuckoo James

Naphtha crackerLONDON (ICIS)--Europe's naphtha prices are on a downward trajectory as ongoing sluggish business in downstream petrochemicals worsened this week and because of a fall in demand for Brent crude and gasoline, industry sources said this week.

Naphtha prices showed a drop of 5% - around $40/tonne (€31/tonne) - from $883-887/tonne CIF (cost, insurance and freight) NWE (northwest Europe) on Thursday 28 March to $843-845/tonne on Thursday 4 April in the open market trading session.

By 16:30 GMT on Thursday 4 April, the June ICE Brent contract fell to $105.74/bbl, a loss of $3.41/bbl compared with the contract price at $109.15/bbl 16:51 on the previous Thursday.

European gasoline demand, and in turn naphtha demand for gasoline blending, fell and prices had dropped 6-7% by early afternoon on Thursday 4 April on expectations of improved supply in the key US export market.

"Both in Europe and the US gasoline is losing pace," a trader said on Friday.

Data from the US Energy Information Administration (EIA) revealed US refineries have pumped up operating levels to those last seen in early January.

Expectations of improving US gasoline supply are being supported by an increase in refinery utilisation rates to 86.3% for the week ending 29 March, and despite EIA figures showing a fall in actual US inventory levels for the same week. 

Gasoline fundamentals in US and Europe, along with petrochemical margins, have traditionally charted the course of naphtha demand in Europe.

Supply has improved on the declining demand. A second trader said on Thursday that it is "seeing tonnes of product at the moment in Europe with no home."

On Wednesday, the European May naphtha refining margin, or crack spread, dropped by 6% to minus $12.20/bbl from minus $11.55/bbl on Tuesday, despite being supported by a fall in Brent crude.

The fall in refining margins is suggestive of the downward pressure on naphtha prices, industry sources said, especially as cracks normally tend to move inversely to crude prices.

"Oil prices have dropped, and naphtha crack stayed very negative. Naphtha got very cheap basically," said a buyer.

European naphtha prices dropped below the $900/tonne mark for the first time since early January in the week ending on 22 March.

March prices saw a cumulative drop of 3-9%, hitting seven-month lows because of improving supply and weak downstream petrochemical demand.

The main application of naphtha is in the petrochemical production of olefins.

Naphtha is also used as a feedstock for gasoline blending.

($1 = €0.77)

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By: Cuckoo James
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