Russia imports, US refinery output to ease Europe naphtha

16 May 2014 09:56 Source:ICIS News

Focus article by Cuckoo James

Naphtha crackerLONDON (ICIS)--A potential rise in imports from Russia, coupled with the end of the US refinery maintenance season, could ease supply pressures in the European naphtha market, sources said this week.

Prompt naphtha supply is tight following last week's strong US refiner demand for European naphtha, but the tightness could ease in the coming weeks.

A naphtha trader said: "I think going forward there is going to be a lot of Russian naphtha coming down so it [supply tightness] is going to ease off." Russia is a major supplier of European naphtha with many major traders based out of the country.

Moreover, the end of US spring refinery maintenance season is expected to boost gasoline supply and reduce US refiners' demand for European naphtha.

"I think the prompt [naphtha market in Europe] is still tight, but I'm seeing more production in the US and more availability of naphtha and gasoline in the US so this can change the picture for June a little bit," a petrochemical buyer said.

Backwardation in the naphtha market has eased with rising expectations of lengthening future supply. Naphtha in the prompt market traded $15/tonne higher than the front-month on Wednesday 14 May, but the spread declined to $4/tonne on the evening of Thursday 15 May.

A backwardation - where the current month's price is traded higher than future months' - is an indication of a tight prompt market relative to future months.
"It is backwardated at the moment, it is going to stay backwardated but there will be more supply later," the trader said.

A second petrochemical buyer said: "In general, the naphtha market was pretty firm until a week ago. Now there is a bit more naphtha around, especially on the prompt. It is not so strong anymore."

"It is still tight, [it has] not eased completely, [but there is] slightly less demand," the trader said.

US gasoline sector demand for European naphtha softened this week as the gasoline-naphtha price spread narrowed, but demand could weaken even further as US refinery output rises, market sources said.

"Demand from the gasoline sector is steady, but it is not brilliant [as] the gasoline naphtha [price] spread is not fantastic," the second petrochemical buyer said.

"Mogas-nap [gasoline-naphtha price] spread is shrinking because of the high crack spread in Europe. Naphtha is too strong," the first petrochemical buyer added.

Despite expectations of easing supply, prompt naphtha supply could remain tight in Europe as the arbitrage window from the Mediterranean to Asia is open leading to heavy volumes moving out of the region.

In addition, a second naphtha trader said; "if you have gasoline suitable grades, you probably will keep them in Europe though", indicating demand from the gasoline sector has not completely dropped off in Europe.

Naphtha spot

By Cuckoo James