The front-month CIF NWE naphtha crack swap rallied to a near five-month high on Wednesday, on a combination of increased demand for the product from gasoline blenders as well as more optimism regarding the arbitrage from the net-long region to Asia.
The front-month CIF NWE naphtha crack swap spiked 50 cents/barrel to minus $2.65/b on Wednesday, the highest since April 29, when it was assessed at minus $2.15/b.
In mid-morning European trading it was heard to have reached an intra-day peak of around minus $2.10/b.
A recent rally in the RBOB/Brent spread -- which is the measure of the relative value of US gasoline futures to the front-month ICE Brent crude futures contract -- widened the gasoline arbitrage to the US Atlantic Coast, incentivising demand from European gasoline blenders, which has supported the premium for blending grades of naphtha such as gas-grade, light virgin naphtha and full-range naphtha.
In addition, naphtha market sources reported more blending interest in the Amsterdam-Rotterdam-Antwerp region for the naphtha-rich, lower-octane West African grade gasoline.
All the blending grades of naphtha were heard pegged at strong premiums in the mid-teens to the CIF NWE naphtha cargo assessment, which reflects open-spec naphtha.
In addition to blending demand, recent stronger Asian sessions also provided some cautious optimism over the prospects for working the naphtha arbitrage to Asia, which has until now been the major downside to the European market, being largely marginal throughout 2016.
However, the return from maintenance of Asian steam crackers and the transition to winter which typically supports prices for propane -- an alternative cracking feedstock -- could reposition naphtha demand in Asia and support demand for European barrels, sources said.
