Global naphtha prices fall amid limited arbitrage opportunities

Commentary summary:

• Supply reductions from Russia to Asia led Asian steam crackers to seek Western product during October, but now the picture has changed.

• A $15/mt premium for MED-to-NWE arbitrage on MR vessels compared to LR2s heading to Asia marks a significant differential.

• E/W spreads reached peak levels in mid-October after a summer rally but have since corrected closer to historical averages.

• Gas-naphtha outlook improves, while pressure on time spreads and cracks is expected for the end of the year.

General drop in naphtha prices over the week, with CIF NWE and MOPJ time spreads correcting downwards. The closed arbitrage from Europe to Asia remains in focus, as we highlighted last week, and there seems to be no short-term incentive from Asia to reopen it.

The E/W trade has also been trading lower in recent sessions, and Asian physical premiums have not reacted upward despite the closure of European margins in recent weeks.

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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