From the lows at the start of summer, July saw somewhat of a rally in the naphtha market globally with Asia leading the way.
Physical premiums for OSN in Asia are in the region of $4.5/mt for September deliveries a $3/mt climb from last week.
Looking at the East-West, we’ve gained $10/mt since the beginning of July moving from -$2/mt to +$8.5/mt – positively bullish.
With the continued supply shortage of Russian naphtha in the market, Asia is looking like a credible home for spot sales on LRs out of the Med. However, as Russian exports look to increase as refineries come out of maintenance, adding further supply to the market can only be bearish for prices.
Do we end up reversing the positive sentiment we see today, and reverse course to a more subdued market printing negative premiums again? One thing is for sure, Q3 trading will be tricky to time.
Sparta Commodities (Live Curves). E/W September contract has gained $10/mt since the beginning of July, a move of -$2mt to +$8.5mt.
Whilst the shortage in Russian naphtha supply offers one fundamental floor of support, it is also worth taking a look at the impact of a backwardation in the crude market.
A highly correlated market, it can’t be ignored that Naphtha has benefitted from the upwards trajectory of the crude markets throughout the summer.
Off the back of the OPEC+ announcements, this week saw Russia and Saudi Arabia announce they will extend their output cuts raising supply concerns in the market and adding further support to the crude complex. All eyes will be on how long these voluntary cuts persist.
Since the start of summer, naphtha cracks in Europe have been climbing from the lows of -$15/mt, with the NWE Naphtha crack now trading around -$12/mt.
It is worth noting that naphtha has outperformed Brent on a % value basis throughout the summer with the Brent swap contract gaining 15.5% since July whereas Naphtha gained 17.5% over the same period.
The escalated premiums on Heavy Virgin Naphtha (HVN) reached a remarkable +150 v’s CIF NWE in Europe and +100 in Asia MOPJ over the past months.
As discussed in our previous insights, the feedstock quality imbalance given a changing global crude slate with medium-sour Russian barrels replaced with lighter and sweeter crudes has reflected in physical premiums.
With subdued petchem demand (due to a poor macroeconomic outlook) coupled with a lighter, sweeter crude slate, we could see paraffinic escalator premiums disappear and added support for N+As.
On the gasoline side, last weeks US counter-seasonal build-in gasoline inventory (EIA) was reversed today. The recent strength in the Aisan market has not only opened the arbs from Europe, but we see the economics work for placing US heavier qualities with a $12/mt open arb to Asia for a September arrival.
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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