Europe naphtha oversupply continues on weak export opportunities

14 June 2013 11:16  [Source: ICIS news]

By Cuckoo James

LONDON (ICIS)--Naphtha supply in northwest Europe is increasing on the back of a closed outbound arbitrage window to the key US export market and a marginally open Asian arbitrage, market sources said on Friday.

On Thursday, independent stock data  revealed naphtha stocks held at the Amsterdam-Rotterdam-Antwerp (ARA) hub rose from last week, indicating demand was weak. Stocks levels are at a five-week high.

Europe is structurally long on naphtha, and sellers need good demand from both the US gasoline blending and Asian petrochemical sector to keep the stocks in balance.

Despite a relatively wide July price spread between northwest Europe and Asia of around $20-21/tonne this week, the arbitrage to Asia was "not really" open, a trader said.

"Arbs are really slow, there is quite a lot of supply," a second naphtha trader said. The source added the hike in supply could be a result of improved refinery run rates.

The gasoline arbitrage to the key US export market is closed, leaving Europe with very little chance to export surplus gasoline, and in turn naphtha, stocks.

Naphtha is used extensively as a gasoline blending component and in the petrochemical production of olefins.

A third trader said: "NWE [northwest Europe is] rather long, we [are] long in [the] prompt [market]. We need the arb to the east [Asia] from Europe."

A fourth trader said on Wednesday: "I see a lot of supply coming from Algeria and Russia and a lot of cargoes on offer."

Moreover, a couple of traders said early in the week that the 'reverse arbitrage' from the US to northwest Europe was open. However, chances of any sizeable cargoes being imported into northwest Europe was small, they added.

There is mixed reaction in the naphtha market to a slight pick-up in demand from the downstream domestic petrochemical sector, evidenced by a recent hike in cracker run rates to 80-85%, up from 75-80%.

While some traders acknowledged there was a pick up in domestic petrochemical demand, while others said it was merely due to short-lived restocking, with one trader adding the inflated demand had already shrank back to its previous level.

($1 = €0.75)

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By: Cuckoo James
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