The price spread between gasoline and naphtha in Northwest Europe is "unseasonably" strong, with naphtha prices having dropped on weak demand from petrochemical users, traders said on October 25th.
Naphtha is a key feedstock for gasoline blending, so when the price spread between the two products widens, it becomes more economic to take cheaper naphtha and make gasoline.
The spread between the front-month gasoline and naphtha swaps was assessed at $62.5/mt Monday, the widest spread since July 18, according to Platts data.
Traders said the widening spread is unusual, as gasoline demand typically peaks during the summer driving season, which supports gasoline values relative to blendstocks.
Market sources said gasoline blending has picked up in NWE, despite the fact that it is not peak gasoline season, since naphtha prices are falling. The increase in blending demand has supported component prices, traders said, as they are required to blend gasoline to specifications.
"Octane prices have been supported by the wider gasoline-naphtha spreads. Everyone is blending so they need octanes for that," a UK-based trader said Tuesday.
The front-month naphtha crack spread--which values a refined product relative to the crude it is made from--is Tuesday trading at minus $13.70/barrel. This is the lowest front-month crack since January 7, 2009, when the front-month naphtha crack spread was assessed at minus $14.75/b. Traders said Tuesday the weakness in naphtha is due to few outlets for the product and poor Asian demand.
"Naphtha cracks were dropping like a stone this morning, freefalling. There is no demand at all and the Asian window is weak," a Europe-based trader said Tuesday.
