Gasoline blending demand in Northwest Europe has been softening on the back of a difficult Trans-Atlantic arbitrage which, in turn, had put pressure on regional blending grades of naphtha.
In particular, the spot arbitrage to the US Atlantic Coast was difficult to work, while economics where somewhat better for flows into Latin American shorts on the back of supportive buying interest in the region.
However, softer US Gulf Coast gasoline prices were making it increasingly difficult for European tons to compete for shorts in Mexico or other countries in the region.
That was reflected in the May mogas/naphtha spread -- the premium of the front-month Eurobob gasoline swap over the equivalent CIF NWE naphtha swap -- which fell to $87.75/mt Tuesday from $90.50/mt Monday, S&P Global Platts data showed. That was the lowest value for the spread since $82.25/mt on March 31.
The Northwest European naphtha complex was mixed Tuesday as the paper market remained firm, while physical naphtha fundamentals were reportedly looking anything but bullish amid prompt length, slowing blending demand and a still difficult arbitrage to Asia.
"There is not a huge list of offers but it is quiet on the buy side," a market participant said. "Open spec is difficult to place and there is not really a strong pull on light virgin naphtha," he said.
According to a second naphtha market participant, there was some prompt length in the market but it did not seem to be affecting cracks or intermonth spreads.
"There is weaker demand for blending so LVN does not trade so easily...arbitrage economics have improved, the Asian market looks better, people try to push, to open the arb gates but not too successfully," he said.
A third naphtha trading source said some LVN was even being bought by petrochemical end-users. "It is not helping the open spec naphtha market that there is so much LVN around due to gasoline weakness."
Weaker sentiment was also reflected in the Northwest European gasoline paper market, where the May Eurobob gasoline crack swap fell to $12.30/b at the close Tuesday from $12.70/b amid marginally weaker crude futures, while the May/June backwardation weakened to 25 cents/mt from 50 cents/mt and the June/July backwardation contracted to $2.50/mt from $3/mt.
May/June and June/July were seen unchanged Wednesday morning in Europe.
Further pressure could stem from weekly US gasoline inventories.
Data published by the American Petroleum Institute Tuesday showed a stock build of 4.4 million barrels in the week to last Friday. According to a survey by S&P Global Platts, industry analysts had expected a 1.1 million barrel fall.
Accordingly, the market will closely follow the more definitive figures released by the US Energy Information Administration during the European Wednesday afternoon trading session, with a week-on-week build now seeming likely.
