Weaker naphtha cracks, time spreads to challenge near-term arbs; slim window for Med product to find Asian homes appears
Global naphtha cracks have weakened as we expected, while Asian and European summer time spreads collapsed this week, which could prove challenging for cargo movements if the trend holds over the coming days.
That said, a slight rebound in the East-West spread has prised open the door for some spot Med material this week to move East at the prompt.
This reopening has been further aided by slim declines in some Med premia as refineries wind down turnarounds in that region this month as well.
However, we would expect these open prompt arbs to be relatively short-lived with flows reverting to more seasonal norms given the restart of several Asian refineries from seasonal maintenance in June, limiting opportunistic cargo movements.
The collapse of MOPJ time spreads also suggests the market is growing more cautious around regional naphtha demand in the summer, a theme we echoed last week given extended Asian steam cracker turnarounds.
We note the announcement of China’s second batch of fuel exports—14 mt for gasoline, gasoil and jet fuel combined—means more finished product will soon be available to the region, crimping the need for inbound naphtha for blending.
In Europe, softening EBOB has narrowed the gas-nap spread as a lack of outlets and the seasonal demand lull has finally hit the complex.
ARA naphtha has not weakened commensurately, given the floor provided by still lucrative steam cracker margins, but a similar lack of profitable outlets for the feedstock should ultimately cast a bearish shadow on the market.
That said, the arb has recently reopened for exporting specific qualities from the East Mediterranean with Greek volumes from Eleusis now viable both in the prompt and down the curve.
This is the first time since March that this arbitrage can function through the Cape of Good Hope.
If Asia keeps physical premiums relatively firm, allowing the arb to remain open, this should help tighten the European market on both the physical and paper sides, limiting the ongoing decline.
US naphtha, meanwhile, has remained oddly resilient despite weakness elsewhere in the complex, even defying soft regional fundamentals, such as upgrader turnarounds in Canada that should weaken US natural gasoline.
Little has changed at New York Harbor where rising PADD 1 gasoline stocks continue to keep naphtha imports at bay until August.
Samantha Hartke, a veteran in commodity management, boasts substantial expertise in energy analysis and product management. In her role at Energy Aspects as Head of NGLs, she analysed global natural gas liquids markets. Previously, at PetroChem Wire, Samantha provided high-quality analysis of North American NGLs and olefins. Her expertise also extends to leading the commercial and operational aspects of IHS Chemical’s daily business information service.
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