London — Large propane cargoes have narrowed to their smallest discount against CIF NWE naphtha cargoes since late January, driven by strengthening propane prices and a relatively flat naphtha market.
On Monday, large CIF propane cargoes in Northwest Europe were assessed at $556/mt, while CIF NWE naphtha cargoes were assessed at $622.50/mt, placing the spread between the two prices at minus $66.50/mt, the smallest gap since January 19 this year.
That tightening has also strengthened as naphtha has more closely tracked crude prices compared to propane, said a market source.
"I think it is the propane and the naphtha detaching from one another in terms of crude," the source said.
Propane has remained relatively strong due to stock drawdowns in the US, while the strengthening of US butane prices has also pushed exporters to revert back to propane, pushing up prices for that product, said the source.
"Everyone is a bit nervous about stock levels [for LPG in the US], and that has pushed LPG into a fairly bullish situation," the source said.
Propane stocks actually rose 3.4 million barrels on the week last Wednesday, according to data from the US Energy Information Administration, but remained 10% below the five-year average.
In the naphtha market, cracks have remained relatively flat since the beginning of August on balanced fundamentals, with cracks weakening only marginally on stronger crude oil futures Monday, as the September CIF NWE naphtha crack swap fell 5 cents to minus $2.25/b at the close.
A balanced naphtha market has made the relative strengthening of propane against crude more pronounced, whereas physical naphtha values have tracked more closely the wider crude complex even as gasoline blending margins have strengthened on resurgent demand for naphtha as blendstock component.
The propane-naphtha gap, known as the "pro-nap", is a measure of propane's competitiveness against naphtha as an alternative feedstock for petrochemical buyers.
The current strengthening began in late April after declining through much of the winter -- a period when propane would typically be stronger than naphtha -- due to demand for propane as a consumer heating fuel.
The strengthening of propane versus naphtha throughout the summer is also unusual, as this i when propane would typically be at its most competitive.
But even at current levels, propane remains affordable against naphtha as a feedstock for petrochemical buyers who can switch easily between feedstocks.
