Close but no cigar: NWE naphtha FOB surge insufficient to offset still robust Med values; supply-side retreat expected next month; US demand appears tentative despite open arbs

27 June 2024 Time to read:  minutes



Global naphtha flat prices and cracks moved sharply higher by midweek, significantly widening the backwardation at the front of the curve, particularly as Asian steam cracker maintenance winds down and naphtha buying ramps up for August deliveries.

The August E/W spread continues to inch up, with this cautious uptick reflecting the fact that August AFEI-MOPJ pro-naps continue to hover close to the switching threshold of $50/t, teasing a possible feed slate change from propane to naphtha in regional steam crackers.


Backwardation at the front of global naphtha curves steepen on stronger demand pulls, heat-related supply curtailments. (Sparta Live Curves)

That said, our all-in forward steam cracker margins for the region in Q3 continue to indicate propane should be the more favoured feedstock in steam crackers, albeit by a razor thin differential of $40-60/t during the quarter. 

This continues to validate our view of only incrementally higher spot cargoes moving into the Far East from the Med.


Sparta forward steam cracker and PDH margins. Propane appears to be still favoured in the Asian steam cracker feed slate through early Q4 despite volatile AFEI-MOPJ swaps. (Source: EIA)

Volatility has marked Northwest European arbs and while they are nearly unchanged w/w–still unprofitable to Rotterdam—NWE premia are moving higher in order to offset still robust Med sales prices.

We continue to expect Med premia to retreat from early July as more refineries exit seasonal maintenance. Still, sweltering heat will prove to be a near-term risk to overall operating rates, putting a floor of support under Med premia.

Freight has provided some help in improving arbs across the board and our freight team maintains shipping rates will trade sideways to slightly lower, implying NWE sales prices will have to do much of the heavy lifting as and when substantial demand materialises to pull barrels to ARA.


Premia for light and OSN material have spiked of late, signalling an uptick in demand, but these have been insufficient to overcome the surge in Med material, ensuring arbs remain shut for now. (Sparta Live Curves)

This will prove to be a delicate balance as relatively weaker NWE FOB prices continue to keep the arb open from Rotterdam to New York Harbor to the point where inbound NWE cargoes of heavy material are now more profitable than Jones Act vessels from the US Gulf Coast for July deliveries and are just 2 centas/gallon away from repeating that dynamic in August.  

Although we remain cautiously optimistic regarding summer gasoline demand, particularly from the US side, the key word here is cautious.

While the naphtha arb from Rotterdam to New York Harbor has opened and indeed widened over the last few weeks, our freight team has not observed substantial decline in vessel length for this route during that time frame.  

This dynamic could change with the onset of the upcoming July 4 holidays next week, traditionally a higher water mark for US summer gasoline demand, resulting in a substantial drawdown in stocks and ultimately stronger draws of gasoline and blending components from the across the Atlantic.


The Rotterdam to New York Harbor arb has widened to the point where inbound NWE cargoes of heavy material are now more profitable than Jones Act vessels from the US Gulf Coast for July deliveries. (Sparta Global ARBS – ARBs Comparison)

In contrast, stronger Asian sales prices have managed to overcome rising Med and AG FOB values to keep the arbs open well into Q4 with said arbs out of Skikda and the AG rising in profitability through end Q3.

Again, we remain cautiously optimistic about the upside of spot cargoes that could move because of these improving arbs given our Asian forward steam cracker margins indicate both propane and butane appear to be more profitable to crack during that time frame, although regional pro-naps signal naphtha should be more favoured come September.


Robust Asian petrochemical buying has kept Far East sales prices lofty enough to withstand strong Med, AG premia to keep eastward arbs open. (Sparta Global ARBS – ARBs Comparison)

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 Samantha Hartke, a veteran in commodity management, boasts substantial expertise in energy analysis and product management. In her role at Energy Aspects as Head of NGLs, she analysed global natural gas liquids markets. Previously, at PetroChem Wire, Samantha provided high-quality analysis of North American NGLs and olefins. Her expertise also extends to leading the commercial and operational aspects of IHS Chemical’s daily business information service.

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