European market hits contango amid rising Russian supply and weak demand

Commentary summary:

• European prompt timespreads entered contango for the first time this year.
• Year-end European destocking coincided with limited arbitrage opportunities, collapsing physical premiums and triggering declines in cracks and timespreads.
• E/W climbs to six months highs, surpassing $25/mt. Improving the economics of the arb to Asia.
• Margins for Mediterranean cargoes to both NWE and Asia have equalized, supporting market rebalancing.

The significant year-end correction in the naphtha market continues for another week, with Dec/Jan timespreads in both European and Asian markets having dropped by $7/mt since early November.

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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