FocusAsia naphtha tops $970/t on crude rally, shut arbitrage window

22 November 2013 04:24  [Source: ICIS news]

By Felicia Loo

Asia naphtha tops $970/t on crude rally, shut arbitrage windowSINGAPORE (ICIS)--Asia’s open-spec naphtha prices rose to near nine-month highs on Friday, topping $970/tonne (€728/tonne) in response to robust overnight gains in crude futures.

The narrowing of the East-West spread, which determines whether it is viable to move European naphtha barrels to Asia, meant that the arbitrage window or the opportunities for cross-regional flows – from the West to the East – have effectively ceased, traders said.

At midday, the first-half January open-spec naphtha contract rose by $13.50-14.50/tonne from 21 November to $973.75-976.75/tonne CFR (cost & freight) Japan, ICIS data showed.

The prices were at their strongest levels since 28 February 2013, when naphtha prices closed at $997.00-999.00/tonne CFR Japan, the data indicated.

“Europe is so strong and the arbitrage [window] is shut. We can see further improvement in Asian naphtha,” said a trader.

Asia, being structurally short of naphtha supply, often draws barrels from European refiners when the arbitrage economics work.

However, as of Friday morning, the East-West spread for January was assessed at $11.00-11.50/tonne, compared with $13.25-13.50/tonne on 21 November, according to ICIS data.

Increasing propane values are pushing crackers globally to use naphtha as feedstock instead, further sealing off the chances of arbitrage opportunities from the West to the East, traders said.

“Propane is very expensive now. On paper, crackers should reject naphtha,” the trader said.

Fundamentally, the Asian naphtha demand remained stable on the back of high cracker run rates, following the end of a spate of cracker maintenance work, traders said.

Recent cuts in refinery runs, owing to poor margins of oil products vis-à-vis the firming crude futures, also tightened the cargo availability of naphtha, and that provided a fillip to naphtha prices in Asia, they added.

Meanwhile, oil prices strengthened overnight, with NYMEX WTI crude futures for January settling $1.59/bbl higher at $95.44/bbl, following release of economic data showing a larger-than-expected decline in claims for unemployment benefits in the US.

January Brent crude futures also closed sharply higher by $2.02/bbl at $110.08/bbl on Thursday.

A strong rally is gasoline also boosted crude prices.

Reformulated blendstock for oxygen blending (RBOB) gasoline and diesel futures increased in response to supply statistics from the Energy Information Administration (EIA) that showed a drawdown in gasoline and distillate inventories.

This added to concerns over winter heating fuel after the weekly oil stock data published by the EIA on Wednesday showed a massive draw on distillates.

“The sudden winter [in the northern hemisphere] came early and the US gas supply is tight,” said another naphtha trader.

Tight heating fuel supply would help support propane prices, and in turn, crackers would continue to stick to using naphtha as feedstock, traders said.

($1 = €0.75)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Felicia Loo

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