Europe naphtha profits from rising gasoline demand

14 March 2014 12:36 Source:ICIS News

Focus article by Cuckoo James

Naphtha crackerLONDON (ICIS)--European gasoline exporters are gearing up for the seasonal switch to summer-grade gasoline, with stocks piling up at the ARA (Amsterdam-Rotterdam-Antwerp) hub in expectation of a pick up in US demand, leading to a boost in sales for blendstock naphtha, industry sources said.

Gasoline stocks held at the ARA hub have risen to their highest in a year, with levels close to those seen last spring, independent stock data revealed on Thursday.

A naphtha buyer said: "There is a good demand for certain grades of naphtha, if your naphtha is suitable for gasoline, you can get a good premium of $20/tonne."

The naphtha April crack spread has risen from minus $7.10/bbl over ICE Brent crude oil futures to minus $6.15/bbl through the course of the week, propelled by the rise in sentiment.

Naphtha prices rose through the week, from $907-909/tonne on Monday to $911-914/tonne on Friday, ICIS data shows.

In the US, gasoline stockpiles fell by a larger-than-forecast 5.2m barrels last week, data published by the Energy Information Administration (EIA) on Wednesday showed.

The fall in US inventory has raised the expectation of an increase in demand from Europe's key gasoline export destination.

In new gasoline shipping fixtures, two vessels were booked from the UK continental shelf and Lavera, France, to West Africa.

"So what I understand is that certain blenders got their [gasoline] allocation from West Africa. If you want to make gasoline, you need naphtha," the naphtha buyer said. 

A naphtha trader said: "[Demand from] Nigeria has been kicking in."

Prompt naphtha supply is tight in Europe because of a pick-up in demand from the blending sector. Refinery maintenance in parts of Europe has contributed to the fall in stocks.

A second trader said reasonable demand from the European petrochemical sector was adding to the tightness.

"Gasoline blending, low CDU [refinery crude distillation unit] runs and decent demand from petchems," the second trader said, were driving supply tightness in the naphtha market.

Competition with alternative petrochemical feedstock propane is still high as the price of propane is lower than that of naphtha.

The naphtha buyer said: "It is [propane's discount to naphtha] -145 for March -158 for April, so people are using LPG [liquefied petroleum gas]."

However, a closed arbitrage window to Asia has reduced some of the upward pressure on naphtha prices, although "the eastern window looks quite a bit better this week versus last" according to the second trader.

In new fixtures, one vessel was booked to ship 80,000 tonnes of naphtha from the Mediterranean to the key export market of Japan.

The price spread between Europe and Asia stood at $15.00/tonne on Thursday, up from $13.50/tonne last Thursday.

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.

"Freight is down, but still it is a bit hard [to export]," the first naphtha trader said.

By Cuckoo James