FocusFaltering oil prices, ample supply leave naphtha market soft

20 September 2013 11:56  [Source: ICIS news]

Naphtha crackerLONDON (ICIS)--Faltering crude oil prices and ample supply have weakened sentiment in the northwest European naphtha market and prices are down from levels seen during a brief bull run witnessed earlier in the month, traders said this week.

Tighter supply caused by refinery maintenance has been more than offset by lower naphtha demand, creating the oversupply.

Naphtha prices were assessed at $921-923/tonne CIF (cost, insurance & freight) NWE (northwest Europe) on Friday morning.

Prices are now almost at par with a month ago, after being at highs of $950-967/tonne CIF NWE for a period of ten days from late August to early September.

Bullish factors in the naphtha market in early September included refinery run cuts in Europe and heavy trading activity in the open market platform.

Trading activity peaked in the week ending on 6 September with 16 cargoes sold, up from six in the previous week. Activity continued to be vigorous last week with nine cargoes sold, but has since then declined.

And despite the current softer sentiment, naphtha prices are still highly volatile because of upstream ICE Brent crude oil fluctuations and have traded within a wide range of $913-940/tonne CIF NWE this week.

DATE

WE 16 AUG

WE 23 AUG

WE 30 AUG

WE 06 SEP

WE 13 SEP

WE 20 SEP

PRICE

894-925

912-937

919-964

955-967

935-963

 913-940

Weekly naphtha prices (CIF NWE) in $/tonne

Fundamentals have slipped since late August and the majority of market players acknowledge the industry is largely oversupplied.

The oversupply is partly a result of poor structural petrochemical demand in the region compounded by current seasonal cracker maintenance and unplanned outages.

Petrochemical producers in Europe are also maximising their propane cracking, especially as the alternative feedstock remains roughly $180/tonne cheaper than naphtha.

But mostly, the naphtha market is under pressure from reduced gasoline blending demand and lower exports to the key Asian market.

Unfavourable blending economics have suppressed naphtha demand from the gasoline sector (see table below). Gasoline barges were trading at a $50/tonne premium over naphtha barges on Thursday, contracting from end of August and making blending unprofitable on paper.

"The reformer margin [derived from the gasoline-naphtha spread] is poor. You put heavy naphtha in the reformer you get gasoline... that spread has collapsed... came off $60-70/tonne. Reformers are struggling, they will reduce gasoline production and increase naphtha production," a naphtha trader said.

A catalytic reformer converts naphtha into a form more suited to blending with gasoline.

Gasoline-Naphtha price differential (Free on Board Barges ARA in $/tonne)

DATE

MON

TUE

WED

THU

FRI

GAS-NAP SPREAD (WE 30 AUG)

105

91

96

96

106

GAS-NAP SPREAD (WE 06 SEP)

88

82

70

70

55

GAS-NAP SPREAD (WE 13 SEP)

46

47

29

37

42

GAS-NAP SPREAD (WE 20 SEP)

37

53

53

 50

N/A

A price spread of less than $100/tonne makes naphtha unappealing to gasoline blenders

“Typically, what happens is that in a refinery you separate the heavy naphtha from the petchem type paraffinic light. You feed the heavy naphtha to reformers. If reformers cut back on production there is more heavy naphtha,” a major petrochemical buyer in Europe said.

If the trend continues for a couple more weeks, it is likely petrochemical naphtha buyers would be buying naphtha with less paraffinic content, it said.

“Instead of buying [naphtha with] paraffin content 75% you buy 65%. I think in general it will happen in a couple of weeks. There is still a lot of petchem naphtha and heavy naphtha still in the market for that,” the petrochemical buyer said.

Meanwhile, there is little opportunity to relieve the high stock pressure in northwest Europe through extra export volumes to Asia as the arbitrage window from Europe to Asia remains closed for the seventh week in a row.

The price spread between the two regions widened slightly from $11.50/tonne last Thursday to $13/tonne on Tuesday for spot cargoes. 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.

A second naphtha trader said: "[The arb is] not at all [open]. East-west [price spread] is still too low."

Meanwhile, the impact of refinery run cuts might still be felt in the market, according to a third naphtha trader.

"A lot of unknowns [in the market] such as refinery run cuts versus lack of arbs versus unclear picture on gasoline. It is very hard to gauge where this market is going to go," it said.

($1 = €0.74)

Follow Cuckoo James on Twitter


By: Cuckoo James
+44 (0) 208 652 3214



AddThis Social Bookmark Button

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly