Naphtha, Oil Market Commentary

Asia market pushing for more arb supply while Europe shows initial signs of not following the trend 

This week, the naphtha market has demonstrated distinct trends on both sides of the Suez. In Asia, MOPJ continues to exert upward pressure, with both spreads and physical premiums continuing to climb, while in Europe, we have observed initial signs of a reversal in the bullish trend following a $2/mt drop in the Jan/Feb 24 spread and some declines on NWE physical premiums, especially for blending qualities.  

Not a bit swing but Asian supply tightness is the main driver for European strength and after a round of arb from MED, probably Asian physical market won’t need +$15/mt premiums. 

Cracks continue their ascent in both markets, fuelled by OPEC’s failure to revitalise crude, although fundamentals do not indicate significantly higher values by year-end.  

MOPJ spread vs Nap NWE spread. (Sparta Live Curves)

E/W has broken the $13-16/mt range it traded in since early November, climbing to $20.75/mt. This ensured arbitrage from the MED, as seen this week for Milazzo, Skikda, and Eleusis.

We are likely to witness more shipments heading towards Asia in the coming weeks, especially from the East MED, where we observe a wide-open arbitrage. 

Skikda Splitter to Japan. (Sparta Global ARBs – Pricing Centre)

Lower export levels from the AG have underpinned the current market trend and are expected to remain below this year’s average for January-February. Asian players, especially those from Korea and Japan, are filling the gap with European barrels, pushing up cracking prices in MED and NWE. 
 
The question now is whether there is potential for Asian premiums to continue rising. Once Asian buyers fill the gap left by the Middle East and Russia for February and March deliveries, and given the current E/W levels for Q1 2024, the existing short-term pressure may shift towards concerns about the European market’s weak demand due to low structural margins and a subdued gasoline outlook. 

Heavy Naphtha from NWE to NYH. (Sparta Global ARBs – Pricing Centre)

The recent downtrend in RBOB/Nap has closed the arb for heavy naphtha from NWE to NYH for January deliveries, although it could reach US coast the rest of the Q1 since the potential of further downside in Gas-Nap is already limited.

Additionally, the weak blending outlook in Europe has impacted EBOB recently. Both factors have caused a decline in physical premiums for European HVN and LVN due to the blending disincentive.  
 
Gas-Nap and RBOB-Nap could have reached the bottom of the trend, and they have trade slightly tick higher, further increases will be needed to reopen the arb and add some support for blending European qualities. 


Jorge Molinero is Commodity Owner for Naphtha and LPG at Sparta. Starting his career as a financial analyst with BBVA, Jorge quickly transitioned to market intelligence within the energy sector, spending 4 years as a naphtha analyst with Repsol before joining Sparta in early 2023.

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