LONDON (ICIS)--Outright values in the European open-specification naphtha spot market have been held back by increased inflows from the US which have compounded overwhelming inventory levels, slowing demand from petrochemical units and a stagnating upstream crude futures market.
At the same time, naphtha is generating limited interest among gasoline blenders because the gasoline market is facing headwinds from overwhelming inventories and slow sales amid concerns over a potential second wave of the coronavirus.
In the meantime, upstream crude futures have been static around the $43.50/bbl level with ongoing trade tensions and reduced OPEC run cuts limiting any significant upswing.
As a result, open-specification naphtha prices for first-half September delivery closed around $373/tonne CIF (cost, insurance & freight) NWE (northwest Europe) on Monday, before rebounding to $379/tonne early on Tuesday.
That said, the front-month naphtha crack spread was heard at -$2.05/bbl on Monday, after fluctuating between -$3.55/bbl earlier last week and -$2.1/bb at the end of the week.
In terms of volatility in the crack spread, a naphtha trader said a positive spread is not the case anymore, and following an easing of crude production cuts as announced by OPEC+ and Brent having problems passing the $44 mark, prices will stabilise or see a small decrease in August, especially if demand from gasoline blenders fails to pick up.
Transatlantic inflows, which usually head east but have been routed to Europe amid slow buying in Asia, will exert further pressure on naphtha inventories in the Amsterdam-Rotterdam-Antwerp (ARA) and Mediterranean regions.
Cracker maintenances in Asia have limited demand for the petrochemical feedstock, leading to a contraction in Asia-bound arbitrage supplies from Europe this month and in August.
Higher US naphtha prices has limited outlets for US naphtha as the once-strong US-Asia arbitrage has weakened, with additional supplies seen heading towards Europe.
Meanwhile, softening naphtha outright values have supported cracker margins for the week ending 24 July with contract margins rising more than 7%, ICIS Margins Analytics suggests.
The propane-naphtha spread was heard at -$73/tonne for July and -$65/tonne for August, suggesting that crackers could prefer to opt for propane given feedstock economics.
Naphtha flat values for July were heard at $388.7/tonne and for August at $383.2/tonne.
With tightness in the naphtha market easing, fundamentals are likely to see a shift with refineries aiming to increase run rates and fragile demand from gasoline blenders, and this will continue to restrict significant gains in the European naphtha values.
Front page picture source: Mast Irham/EPA/Shutterstock
Focus article by Shruti Salwan