Current arbitrage weakness caps naphtha upside, but March offers hope
Commentary summary:
– Naphtha timespreads have encountered resistance amid closed arbitrage routes to Asia.
– E/W has dropped by $5/mt over the past two weeks and Asian cash diffs also have corrected to avoid the arbitrage from the West, but this threat could become an opportunity soon.
– Medium-term prospects point better for March deliveries, driven by potential reductions in Russian exports and weak eastern refining margins.
– Higher TC6 freight rates are harming NWE arbitrage economics, demanding stronger premiums.
The rebound in naphtha timespreads seems to have found a ceiling in recent sessions, with export options to Asia via the Cape of Good Hope closed and a gasoline market that has corrected sharply downward in Asia. In Europe, the market continues to favour contango operations due to limited export opportunities.
The message from the Asian market is clear, short-term arbitrage from the West is not needed now.
A reduction in physical premiums for second-half February deliveries, despite the E/W dropping by $5/mt over the past two weeks, and rising freight rates have prevented the arbitrage to open from MED. The weak petrochemical margin and Sing 92 weakness don’t offer a support to current MOPJ market for Feb deliveries.
Jorge Molinero is a Commodity Owner at Sparta. Starting his career as a financial analyst with BBVA, Jorge quickly transitioned to market intelligence within the energy sector, spending 4 years as a naphtha analyst with Repsol before joining Sparta in early 2023.
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