Europe naphtha strengthening on Asia, gasoline demand

LONDON (ICIS)–The outlook for Europe’s naphtha sector is strengthening after weeks of a bear market, on the back of a pick up in exports to Asia and a strong gasoline sector, industry sources said on Wednesday.

Northwest European naphtha prices firmed as the outlook perked up, rising from a low of $612/tonne CIF (cost, insurance, freight) NWE (northwest Europe) on Friday 14 November to as high as $626/tonne on Tuesday 18 November.

A naphtha trader described “gasoline plus East” as the cause of the firming sentiment. Europe is structurally long on naphtha and needs to export to Asia and the US gasoline sector to keep stocks in balance.

Refinery outages at Venezuela and Brazil have sparked a rise in demand for European gasoline, and in turn demand for naphtha as a gasoline blendsotck.

Blending economics favour using naphtha in gasoline production with the price spread between the two products at $126/tonne for FOB (free on board) barges ARA (Amsterdam, Rotterdam, Antwerp) on Tuesday.

The arbitrage to Asia is open with a second trader noting the east-west spread at a wide $37/tonne.

“Paraffinic naphtha is clearing up, and it [demand] is coming from the east,” the second trader said.

There are downside risks to the current increase in European gasoline exports. US ethanol credits Renewable Identification Number (RINs) have increased, which could encourage US gasoline exports and discourage European gasoline exports to the US.

A gasoline trader described the rise in uptake of European gasoline as “short-lived.”