Naphtha E/W collapses as Hormuz uncertainty paralyses eastern buyers
‘- The naphtha E/W spread has dropped to the lowest level since the beginning of the Iran war. May contract is currently trading below $45/mt, less than $10/mt higher than before the pre-war level.
– 1H June deliveries from Europe via Cape are now closed, with Asian players holding back purchasing decisions amid the ongoing uncertainty around the Strait of Hormuz. No buyer wants to commit to the last expensive cargo routed the long way around if the strait reopens in the coming days or weeks. This wait-and-see stance has effectively frozen eastern arb appetite.
– For the first time since the war began, NWE is offering better economics than Asian markets for MED-origin naphtha. Layers that had been directing volumes eastward throughout the conflict are now finding NWE to be their best outlet.
– Russian volume points to decrease also in the short term as Ukraine struck the Rosneft-operated Tuapse refinery on the Black Sea for the second time in less than a week.
– Meanwhile, the two-week Iran war ceasefire expires on Tuesday 22 April, with a second round of Islamabad talks being set up. The Strait of Hormuz remains effectively closed after Tehran reversed its brief reopening on April 18, citing the continued US naval blockade on Iranian ports.
– The most likely scenario from here is a rebound toward current levels, with timespreads already ticking higher over the past few sessions. The naphtha deficit in Asian economies is structural at this point. Even if a deal is reached relatively soon, the need to attract product from the West will persist for months.
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