Europe leads the strength on the naphtha market while Asia pushes E/W as both compete for Mediterranean barrels 

22 September 2023 Time to read:  minutes

The strength of the European market is the main development in the naphtha market this week. Higher activity on the arb from MED to NWE for OSN and a fresh rebound for heavy qualities have changed the picture from the previous week. 

This is evident both in physical premiums and paper, with spreads resuming the bullish trend from the summer with the Oct/Nov spread currently trading at $4/mt after doubling in the last four days. 

In the physical market, where negative premiums for OSN have disappeared due to renewed petchem demand and an increased number of OSN fixtures from MED facing NWE in the coming weeks.  

OSN physical premium climbed during last week to positive values. (Sparta Live Curves)

We have also witnessed a rebound in the heavy naphtha market, following the drop in premiums at the end of the summer and the start of winter gasoline production. 

Renewed strength in European blending activity has contributed to the overall rebound on heavy qualities, taking spot physical premiums for heavy naphtha to the highest level since the end of the summer gasoline season. 

Heavy naphtha physical premium NWE. (Sparta Live Curves)

Last week we talked about how heavy naphtha cargoes from Europe could face NYH, but the latest price movements have pointed in the opposite direction, with a weaker RBOB in NYH and the most recent spike in the European market closing this arb again.

Europe has a renewed appetite for blending and the gasoline T/A arb remains closed as well as heavy naphtha for blending purposes. 

Heavy naphtha from NWE to NYH. (Sparta Global ARBs – Pricing Centre)

With these levels, NWE remains as the best option to place European OSN cargoes, with physical premiums decreasing in Asia for two weeks in a row harming the netback.

Nevertheless, the last trend during this week has been bullish also on the Asian paper, where MOPJ Oct/Nov spread reached +$4.75/mt currently after trading sideways for a couple of weeks and E/W reaching the highest level since August with the October contract currently trading at +$6.75/mt. 

MOPJ spread Oct/Nov ‘23. (Sparta Live Curves)
E/W Oct 23. (MOPJ spread Oct/Nov ‘23. (Sparta Live Curves)

In the US market, RBOB spread weakness is being reflected in heavy naphtha premiums trading RBOB basis.

After trading sideways during the last two weeks, RBOB Oct/Nov spread has fallen from 10 cpg to below 7 cpg for November contract.

Heavy naphtha in the USGC is trading currently at –97cpg vs RBOB and this has reopened the heavy naphtha Arb to the East of Suez with the Asian market willing to pay close to $70/mt over MOPJ for a 2H Oct delivery. 

Heavy naphtha arb to Chiba.  (Sparta Global ARBs – Pricing Centre
Rbob Swap Spd Oct/Nov 23. (Sparta Live Curves)

Jorge Molinero is Commodity Owner for Naphtha and LPG 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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