Weak demand for blending grades of naphtha in Northwest Europe is putting a cap on any significant strengthening of the physical naphtha market, with the mogas/naphtha swaps spread nearing a two-year low this week.
The front-month mogas/naphtha spread -- the premium of the front-month Eurobob gasoline swap to the equivalent CIF NWE naphtha swap -- was assessed at a 23-month low of $27/mt Wednesday, the narrowest front-month mogas/naphtha spread since November 18, 2015, S&P Global Platts data shows.
According to market participants, blending grades of naphtha normally used to blend into gasoline were offered to petrochemical end-users at similar levels as open spec naphtha, the traditional cracking feedstock in Europe.
"Blending demand [for naphtha] still feels poor," a trader said. "Some blending barrels trade into the cracking pool."
Another trader said blending demand has been poor lately, with some Light virgin naphtha clips not moving. "LVN and heavy naphtha are still a bit soggy and threatening to move into the petchems pool," he said.
An end-user said demand for naphtha was firm in Northwest Europe as LPG was still too expensive to use as a cracking feedstock.
However, if propane continued to weaken as it did sharply in the last three days, it would become competitive again versus naphtha and there was not enough blending demand to balance the naphtha market.
"We still get blending grades offered at mid-single digit [premiums]," the end-user said Thursday. "This is not so nice stuff that usually gets into blending to boost volume of gasoline rather than boosting the octane number."
The CIF NWE naphtha cargo was assessed at $559.50/mt Wednesday, $4.25/mt higher on the day and assessed at a $5/mt premium over the November CIF NWE naphtha swap, down from a $6/mt premium Tuesday.
In the paper market, the November CIF NWE naphtha crack jumped 55 cents/b to around $1.60/b at market close Wednesday amid rangebound crude futures, while the November/December CIF NWE backwardation widened to $7/mt from $6.25/mt.
"I think the physical is struggling to keep up with paper," a fourth naphtha market participant said.
At noon London time Thursday, the November naphtha crack was heard trading at $1.85/b, while the bid/offer range for open spec naphtha cargoes was heard discussed between a $2/mt and a $5/mt premium over Platts CIF NWE naphtha cargoes.
