FocusEurope naphtha demand peaks, but outlook uncertain

05 September 2013 12:55  [Source: ICIS news]

Naphtha crackerLONDON (ICIS)--European naphtha demand rose this week, supported by the gasoline sector, but the outlook remains uncertain as downstream petrochemical plants go offstream and Asian exports dry up, industry sources said on Thursday.

Late on Thursday morning, naphtha cargoes were assessed at $957-959/tonne CIF (cost, insurance & freight) NWE (northwest Europe) as front-month ICE Brent crude oil futures stayed above $115.00/bbl, and the naphtha crack spread - the difference between crude oil and naphtha - remained close to minus $6.00/bbl.

Europe naphtha cargo trades on the daily open market platform rose to eleven cargoes in just three days. The majority of the cargoes were bought by oil major Shell.

A naphtha trader said: "Demand is definitely perkier now. Few of the guys are covering short. But in terms of what the direction is we can't say at the moment."

Some of the demand is from the gasoline sector, the source said. "Naphtha demand is for gasoline, everyone is coming in for winter blends. They start now because if they wait until October it will be more expensive."

Adding to the bullish sentiment, a spate of refinery turnarounds in the coming weeks are expected to curtail naphtha supply. A second naphtha trader said: "The European overhang is significantly less this month due to refinery turnarounds. [Also] petchem runs are stable."

But there is uncertainty in the European naphtha market, as the arbitrage window to Asia remains shut for the fifth week in a row, with the price spread between the two regions steady at $8-9/tonne.

While dependent on factors such as freight rates, a minimum spread of $15-20/tonne is considered to be necessary for an arbitrage to open east.

Europe is structurally long on naphtha, and sellers need to export to the US gasoline and Asian petrochemical sectors to keep stocks in balance.

"That [higher demand] doesn't mean that Europe won't have excess barels overall, and we are therefore dependent on arbitrage moves as per usual. Right now, there is no arbitrage working on paraffinic [naphtha] barrels out of the region," the second trader said.

In addition, several naphtha crackers are set for maintenance in the coming weeks, reducing demand for naphtha.

However, some of the big naphtha suppliers are reluctant to part with any surplus stocks, and this has helped support naphtha values.

The first trader said: "There is excess supply, the big guys are sitting on it rather than just put it out in the market. They don't want to sell, because if they all start putting tonnes out there, you will end up with [a price of] $850/tonne [for naphtha]."

($1 = €0.76)

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By: Cuckoo James
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