Demand from Europe’s petrochemical sector is weak but Asia is experiencing tighter supply
European naphtha pricing volatility has contributed to market uncertainty even as traders struggle to determine positions amid mixed signals from downstream sectors, industry sources said the week ended 2 May.
“It is a very unclear market – gasoline up and down, naphtha up and down, flat price moving around. [It is] very hard,” a naphtha trader said.
Demand from the US gasoline and Asia petrochemical markets started to decline mid-week, but market sources are cautiously optimistic of strong underlying fundamentals. “So I don’t want to be short,” the trader said.
Naphtha prices rose to a yearly high of $939-941/tonne CIF (cost, insurance & freight) NWE (northwest Europe) on 29 April on the back of rising ICE Brent crude oil futures and healthy demand. But prices quickly declined, falling to as low as $918/tonne by 1 May.
Market sources noted the spread between April NWE and Asian naphtha cargoes at $15-16/tonne on 29 April. By 1 May, the spread narrowed to $14/tonne for May.
While dependent on factors such as freight rates, a minimum spread of $15-20/tonne is generally considered to be necessary for an arbitrage window to open east.
A second naphtha trader agreed that although Asia was experiencing tighter supply, European exports to the region had fallen from the previous week.
“[The arbitrage window] is still open and the east is pulling as they seem to have very low stocks. [But] the arb has closed a touch from last week,” it said.
The first trader said the arbitrage window was only marginally open “because Europe is very strong” in terms of pricing.
Tightened western inflows into Asia, along with cutbacks in product availability from India, a regular supplier, has resulted in tighter supply in Asia. There has been reduced cargo availability within Asia because of an active refinery maintenance season this spring.
Meanwhile, demand for European gasoline, and consequently blendstock naphtha, has fallen as fresh US data revealed a build-up in stocks. Gasoline stocks in the key US national market, Europe’s main export destination, rose by 1.6m bbl the week ended 25 April, the Energy Information Administration (EIA) revealed on 30 April.
However, demand could still pick up as the US approaches its summer driving season, sources said. A petrochemical buyer said: “It is now a lot less, [but] there is demand into West Africa.” Second quarter gasoline allocations into Nigeria have created demand for European naphtha as a blendstock.
Meanwhile, domestic petrochemical demand remains muted.