Hormuz risk pushes for the paper clawback despite rising AG volumes

Deep Dive Summary:

• Naphtha timespreads rebounded $6/mt during Thursday session in both MOPJ and NWE, as renewed Hormuz risk put the bid back into paper.
• Gulf crude shipments are back near pre-war levels, but product flows are still well short, keeping the naphtha market tight.
• Gas-nap has rebounded in Europe on positive blend margins in ARA and low Rhine and Danube levels.
• The bias stays constructive on structure and the E/W, with the risk being AG product flows catching up with crude in the medium term.

The paper bounce flagged earlier in the week has come through. On 1 October closes, the MOPJ timespread rose $6/mt on the day to $32.50/mt and the NWE timespread gained the same amount to $29.50/mt, taking both structures back to last month highs.

(MOPJ timespreads keep reaching new Q4 historical seasonal highs)

Geopolitics did the work with crude hitting fresh highs amid reports that Trump has told aides strikes on Iran will resume after the November midterms, with a third US carrier heading to the region and three tankers hit by projectiles in Hormuz on Tuesday.

Iran has also widened its tanker blacklist to cover a charterer’s entire fleet for unauthorised Strait transits.

Underneath the headlines, the Gulf is recovering unevenly, with crude shipments back to around 17.5 mb/d, very close to pre-war levels, while product flows still below 60% of the previous baseline.

The E/W hit a new record for the November contract during the week, reaching $70/mt before easing $5/mt to current levels. Freight has kept climbing despite a small correction midweek, and that rally has now shut the arb to Asia from Europe for November deliveries.

Margins only turn positive again from December deliveries onwards, which keeps Mediterranean sellers focused on the European alternative for now.

USGC numbers have improved mainly, but so far just LR2 option show a positive margin. Heavy naphtha remains too expensive to arb and the tight light end market in the US has impacted into lower naphtha exports flows since July.

So far, the end of summer driving season has not been translated into more arbitrage opportunities in the US, and we expect the flow to remain limited into Asia and Europe while the gasoline market remains this strong.

(Freight rally has closed prompt option for MED arbs into the East of Suez)

Gas-nap has rebounded in ARA where blend margins remain positive. Also, low Rhine and Danube levels keep barge supply tight inland, so the European blending market remains tight and incentivising naphtha demand for blending.

With the current stock levels in the US, ARA places itself as the main alternative to supply gasoline shorts in the West, while E/W gasoline rally has also opened fresh opportunities into East Africa.

(Gas-nap differentials push for more naphtha demand in both sides of Suez)

In Asia the picture is the same, Sing 92/MOPJ sits at a 10-year seasonal high of $33/bbl, and China has stopped issuing October export licences for clean products, cutting around 260 kb/d from planned exports. Both views on gasoline keep pushing for higher blending naphtha demand.

Overall, the rebound confirms the paper sold the AG recovery too early in September. Crude is back in the Gulf but products are not, and blending demand is pulling on naphtha in both Europe and Asia, so the bias stays constructive.

The risk is a calmer Strait letting AG product exports catch up with crude, while freight keeps the arb from Europe shut for November, leaving the paper exposed to giving back part of this move.

About the Author
Jorge Molinero | Commodity Owner, Light Ends & Gasoline, Sparta Commodities
Jorge is Sparta’s Commodity Owner for gasoline and light ends. He began his career as a financial analyst at BBVA before spending four years as a naphtha analyst at Repsol. His market analysis is cited by Reuters, Bloomberg, and Financial Times.
Connect: LinkedIn

About Sparta
Sparta is the AI leader for commodity trading, home to Leonidas AI, the first decision-making engine for oil and commodity traders. Backed by USD 42 million in Series B funding led by One Peak, with participation from returning investors FirstMark and Singular, the same investors behind AI leaders like Legora, Dataiku, and Synthesia. From independents to multinationals, the world’s leading commodity teams use Sparta and Leonidas AI to move faster, trade smarter, and stay ahead of the market.

For more information, visit Sparta or follow us on LinkedIn.