Is a deal close?

Commentary summary:

• The MOPJ crack has dropped $2/bbl this week, while the European crack has slipped back into negative territory.

• Weakening E/W levels are weighing on arbitrage margins from both Europe and the US into Asia, temporarily capping the wide economics seen since the conflict began.

• With no change in physical naphtha volumes, the market appears to be in a holding pattern, waiting for clarity on whether the Strait of Hormuz will reopen.

• In another scenario, a potential disruption to LPG flows into India from the US blockade could trigger a short-term rebound in the pro-nap spread.

The naphtha market correction keeps going on current headlines regarding a potential deal in Iran. The bearish movement that began with the announcement of the ceasefire nine days ago has continued to play out over the past few sessions.

Despite a slight recent uptick in timespreads, May/June levels in Europe and Asia remain more than $25/mt below previously reached highs. The MOPJ crack has fallen $2/bbl over the course of this week, and the European crack has returned to negative territory.

However, the largest correction can be seen in the E/W, with greater implications for the physical movement of barrels. The April contract is trading below $50/mt, a 50% correction in just seven sessions. This correction is currently weighing on arbitrage opportunities into Asia, putting a temporary brake on the wide margins seen since the onset of the conflict from both Europe and Asia.

(E/W collapse after the ceasefire announcement)

With no real change in naphtha volumes, it looks like the market is waiting for a short-term resolution. Nobody would like to buy the last cargo before Hormuz opens.

The impact of the war is going to be felt one way or another for months, but the cost of the arbitrage for an Asian buyer would be substantially lower if the Straight reopens suddenly.

Imports for the West will remain high, January-to-May West-to-East arbitrage is heading for an all-time record at around 11 Mt since the beginning of the year.

Given the current situation, it is very likely that 2026 will end up as the highest-volume year for naphtha arbitrage on record.

(Arbitrage margins to the East have weakened)

Looking at alternative petchem feedstocks, pro-nap keeps trading at the lowest seasonal level in the last ten years, both in the East and in the West, and also down the forward curve through September.

The current setup points to a summer where steam crackers with switching capacity will keep maximizing propane intake.

However, the US blockade threatens LPG supply that had been flowing into India, pointing to a potential rebound in the spread if those cargoes are disrupted in the short term.

(Pro-nap finds a floor on tighter LPG outlook and naphtha correction)