Is naphtha’s peak behind us?
Commentary summary:
• Rising European cash diffs and lower E/W levels shift arbitrage attractiveness from Asia to EU.
• An MR from MED to NWE currently offers over a $10/mt margin advantage compared to LR2 shipments to Asia, indicating a shift in market focus.
• The TC2 rate drop and weaker local blending demand has kept arbitrage open from NWE to NYH for blending cargoes.
• Recent corrections and muted Asian premia against European strength suggest that opportunities are limited and will likely remain so in the short term.
Naphtha markets have continued trading higher in cracks and timespreads week-on-week across every market, with Europe seeing the largest weekly increase.
As we pointed out last week, the impact of rising physical premiums in Asia, along with the strength of the E/W spread, opened arbitrage opportunities to Asia during the past weeks, helping to keep the European balance tight and pushing up the different NWE naphtha indicators.
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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