Europe light ends markets turbulent on Trump policy, fundamentals

LONDON (ICIS)–A potential shift in US biofuels policy and weaker fundamentals have triggered a sell off in Europe’s gasoline, naphtha and propane markets.

“Massive stops [stop-loss orders] going [off in naphtha trading] thanks to falling gasoline and LPG [liquefied petroleum gas],” a trader said.

Sentiment first pivoted deep into negative territory on Tuesday as gasoline prices weakened on market uncertainty after news emerged the Trump administration was considering an executive order to overhaul the US renewable fuels mandate.

The negative sentiment was cemented on Wednesday by a fall in US propane prices on perceptions of better-than-expected supply in the US despite its high volume of exports.

“International prices fell in sympathy with US prices,” an LPG trader said.

Light ends – LPG, gasoline and naphtha – traders are on the look out for heightened opportunities on the back of the new found volatility.

“The light ends complex is collapsing altogether,” a second trader said.

Eurobob fell $33/tonne from $550/tonne on 27 Feb to $517/tonne on 2 Mar

Europe’s chances of exporting gasoline and blend stock naphtha into its key US market has declined as the transatlantic arbitrage window has narrowed on declining US gasoline prices and high inventories in the country.

A third trader said late on Wednesday: “Yesterday it was Trump’s impact on RINs [Renewable Identification Numbers], making gasoline collapse. Today it is both the naphtha and LPG that are correcting in both Europe and Asia at the same time.”

According to a statement by the US Renewable Fuels Association (RFA) on Tuesday, President Trump’s team had informed the organisation of a pending executive order on the US biofuels programme.

Although the White House spokesperson Kelly Love later denied this, the RFA chief Bob Dinneen has stuck to the statement.

Dinneen told media outlets: “[There is] certainly something in the works, but they’re not going to confirm it until they are ready to roll with it.”

Naphtha is used as a petrochemical feedstock and for blending into gasoline. Rising US gasoline inventories had already been weighing on naphtha.

Europe naphtha spot cargo prices declined from $497/tonne cost insurance freight (CIF) northwest Europe (NWE) on Monday 27 February to $482/tonne on the morning of Friday 3 March.

Meanwhile, European propane prices are coming off on weaker US propane prices driven by better-than-expected supply, the LPG trader said.

It is also under pressure on low European petrochemical demand in February and slowing heating demand in the approach to summer, despite tight supply in inland markets.

This has in turn has turned sentiment in the European naphtha market negative as the naphtha-propane price spread has widened enough to prompt coastal crackers to rethink their feedstock strategy from February.

The naphtha-propane spread widened to $103/tonne for March and $107/tonne for April on Thursday 2 March.

“Naphtha gained support through February when chemical plants were switching to propane, and now we see a reverse in March,” the LPG trader said.

However, tight propane supply in inland markets could encourage crackers in the region to continue cracking naphtha.

Transport of propane from the Antwerp Gas Terminal (AGT) has also faced “problems”, the second trader said. AGT – which supplies propane into inland markets – declined to comment.

“Really depends on cargo arrivals and how much they can push through inland,” the second trader said.

March propane cracking – although expected to be up from February – is not likely to rise to the heights seen in December as the unique petrochemical product yield of naphtha is still more lucrative.

Naphtha has an advantage over propane in that it typically yields more butadiene and aromatics versus feedstock propane. 

Recent price hikes in butadiene and benzene have enabled crackers to increase their spot naphtha-based margins.

Source: Margaret Wells, Handbook of Petrochemicals and Processes

Focus article by Cuckoo James

(Picture source: Olaf Kruger / imageBROKER/REX/Shutterstock)