Europe naphtha prices volatile on low liquidity, uncertainty

Focus article by Cuckoo James

LONDON (ICIS)–European naphtha prices plunged closer to the $600/tonne mark this week on low upstream Brent crude oil futures, remaining at a four-year low, ICIS data showed on Friday.

Prices recovered briefly during mid-week on the possibility of good demand, but fell again later on amid low liquidity, driven back down by a further drop in Brent.

ICE Brent crude oil futures declined steadily from $83.28/bbl on Monday to $79.21/bbl on Thursday at 16:30 local London time.

Naphtha traded at a low of approximately $612/tonne CIF (cost insurance freight) NWE (northwest Europe) early in the week, before rebounding to $629-632/tonne on Wednesday evening in the open market.

There was uncertainty over potential demand as mixed views emerged. A rally in the related US rubbers market would support US gasoline demand, a trader noted, adding it could fuel demand for European naphtha which is used as a blendstock in gasoline exported to the US.

However, a second trader said it doubted US gasoline strength would lead to any substantial increase in naphtha demand.

Nevertheless, a wider naphtha-gasoline price spread looks good on paper and has supported the European naphtha crack spread, the second trader noted.

Prices also rebounded on a widening Asian arbitrage. The east-west price spread was at $38/tonne for December, compared with $35/tonne for November last week.

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 minimum of 275,000 tonnes of naphtha have been booked to the east this week, shipping data and traders revealed.

A petrochemical producer booked a long-range (LR) 1 vessel ex-Cartagena, and an LR2 ex-Bilbao, the second trader noted. An oil major booked an LR2 ex-Terneuzen, it added.

The ex-Cartagena vessel is due to carry 80,000 tonnes of naphtha to Japan on 24 November, shipping fixtures revealed.

Another oil major booked two vessels to carry 80,000 tonnes of naphtha from the ARA region and 55,000 tonnes from Tuapse, Russia respectively, shipping fixtures showed. Another vessel carrying 60,000 is also bound for Japan, the data revealed.

Meanwhile, petrochemical producers might be more inclined to utilise naphtha as a feedstock as the price spread between naphtha and alternative feedstock propane narrowed substantially from $118/tonne last week to $85/tonne this week.

In general, steam crackers in Europe are set up to switch only 25% of their production to LPG. Nevertheless, there is a huge variation as newer crackers often have more flexibility in switching between the feedstocks, while older crackers are often unable to crack propane.

However, ongoing shutdowns at Royal Dutch Shell’s Moerdijk and Total’s Antwerp petrochemical plants have capped demand for chemical-grade naphtha in Europe.