London — Naphtha cracks in Asia and Europe plunged Tuesday as both regions struggled to offload excess barrels amid lackluster demand.
In Asia, the H1 December CFR Japan naphtha physical crack against front-month ICE Brent crude futures retreated $8.225/mt on the day to $81.20/mt on Wednesday's Asian close, the lowest level in three months.
The second-line trading cycle was last lower at $77.375/mt on July 3.
Fundamentals on the Asian naphtha complex continued to regress from oversupply and tepid demand as the market backpedalled into a contango structure, ending two weeks of backwardation.
The spread between benchmark CFR Japan naphtha physical first-line and third-line trading cycles -- currently H2 November versus H2 December laycans -- went deeper into negative terrain, down 50 cents/mt to minus $2.50/mt Wednesday, reflecting weakness that could extend into December.
The oversupply situation could extend further into December-delivery laycans as the digestion of surplus materials has been slow, with arbitrage naphtha cargoes for November arrival into Asia likely to be rolled over into December, market sources say.
In the West, the front-month CIF NWE cargo naphtha crack was also lower, falling to minus $5.10/b Tuesday, the lowest point since August 30, 2016. That weakness was also reflected in the paper structure in Europe, as the contango at the front of the curve steepened, with October weakening to a $1.75/mt discount to November.
That weakness was due not only to a weakening gasoline market, but also lingering oversupply of cargoes from the US through September and into October, sources said, while regional demand and an open arbitrage from the Med to the East has remained insufficient to cut back the overhang.
Tepid blending demand and well-covered petrochemical buyers, who have also benefited from competitive propane prices, has left the market struggling to find buying interest in recent weeks, according to sources.
However, product has continued to flow East, sources said, pushed in particular by the weakness in Europe.
