Two markets, opposite directions: flat price sells the Oman talks while Asian premiums print fresh two-month highs

Deep Dive Summary:

• The naphtha paper complex sold the deal headline hard, the August E/W and the MOPJ Aug/Sept spread each shedding north of $20/mt from their recent peaks as crude extended its slide.
• None of that relief showed up in the physical with FOB MED premiums more than doubling on the week, also the Asian premiums climber to new highs as AG loadings remain frozen behind both straits.
• US propane stock build of 2.5 million barrels came in above forecast, keeping propane cheap enough for flexible crackers to keep leaning on it and stay off the naphtha spot market.

The pause in hostilities gave the paper an excuse to unwind war premium, and it took it: the E/W came off hard and the Aug/Sept spread gave back more than $20/mt.

But the phsyical market went the other way entirely, with Med premiums ripping to levels not seen in two months and Asian sales premiums climbing alongside them.

The tell is that the correction is confined to the very front of the curve while the deferred structure barely moved, which shows market is pricing a fragile diplomatic track rather than an actual supply recovery. With AG loadings still stuck, the physical has validated none of the relief the screens are showing.

(Arbitrage opportunities into Eastern markets keep improving)

The reason to fade the paper move rather than the premiums is that nothing physical has changed. Hormuz transit is still a trickle and Bab el-Mandeb remains largely impassable after the Red Sea strikes. Both of the AG’s export routes are, for naphtha purposes, shut.

That leaves European barrels as the only real pressure valve, and the economics are already bending to send more of them round the Cape into Asia, with US cargoes likely to follow as the pull persists.

The Skikda prices explosion is that dynamic in miniature, with Asian buyers in a rush to cover the September shorts. The question is which side blinks next, whether the physical eventually follows the paper lower or the paper snaps back to a physical market that never softened. While both straits stay shut, the second looks far more likely, and the near-term risk sits to the upside.

(Physical premiums trade higher in MED and Asia despite E/W correction)

And a third chokepoint appear now, as the Rhine at Kaub dropped to 32 cm on July 27 and is forecast under 20 cm by early August, the point at which barge operators are no longer obliged to lift cargo.

The effect is already showing up as a split market: naphtha piling up in ARA where it is stranded, while crackers upriver in Germany run short of feed.

LyondellBasell has declared force majeure on the Wesseling butadiene unit and Shell’s ethylene cracker has been down since early July, and the usual workarounds are largely unavailable with the right-bank Middle Rhine rail line shut for refurbishment into December.

In effect the river is doing inland what the straits are doing seaborne, stranding supply away from the demand that needs it and propping premiums from a second angle.

The larger-than-expected US propane build reinforces a comfortable global LPG picture, with high inventories and a lagging Mont Belvieu keeping propane cheap even as naphtha rallies.

That gap is precisely what lets flexible crackers maximise C3 and hold off buying some spot naphtha cargoes, which remains the main thing capping the physical scramble. The medium-term lean stays lower, with the caveat that a drawn-out AG closure would eventually pull Gulf LPG cargoes at a higher pace and start to close the gap.

The market now hinges on whether the Oman track delivers anything concrete and, if it does not, whether the paper is forced back up to a physical that never came down.

Further out, an extended standoff risks reviving the demand destruction seen in the first wave of the crisis around October and November. For now, with both straits shut and the Rhine adding its own squeeze, the balance of risk stays to the upside.

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

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