Navigating backwardation: Naphtha market’s recovery arrives early

Commentary summary:

– European markets outperformed the MOPJ complex recently, with the full curve in backwardation.

– E/W forward curve flattens, aligning with the historical average of $19/mt for the E/W spread across 2025.

– Firm cash differentials in Europe are expected in the coming weeks, after a $10/mt uptrend during December.

– New estimations suggest Asian naphtha demand is projected to grow significantly during 2025.

The naphtha market traded higher in both cracks and timespreads over the past week, driven by an arbitrage to Asia that remains open from the MED for LR2s, although margins are tightening compared to the MR option to NWE.

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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