The Northwest European naphtha market is experiencing a slow start to the gasoline blending season, with a lack of arbitrage possibilities and weak petrochemical demand leaving buyers and sellers in a "stalemate" situation, sources said Tuesday.
Buyers and sellers failed to match each other on prices and dates during the Platts Market on Close assessment process Monday, with a wide bid-offer spread at the close of $1,066-1,075/mt, suggesting that the market hasn't yet found its footing, sources said.
"Buyers and sellers are still far apart. It's a standoff, no one needs to move," a petrochemical source said. "Time will tell us where value is."
Naphtha is a key blending component in summer-specification gasoline for its low Reid Vapour Pressure (RVP) qualities. The product is typically pulled into the gasoline pool shortly after the seasonal specification change around mid-March, as soon as its discount to gasoline widens enough.
However, even though the CIF NWE naphtha cargo discount to Eurobob gasoline barges FOB Amsterdam-Rotterdam-Antwerp widened $20/mt from Friday to $103.25/mt on Monday's close -- a more than six-month high -- demand for naphtha for blending remains quiet.
One trader said that gasoline blenders are not being "incentivized" to blend naphtha by the current high cost of other, octane-rich components needed for the process.
"The market needs the pull from blenders. There's a pretty wide spread and stuff going on but no fundamental support from the gasoline pool," he added.
Moreover, demand for European naphtha from overseas markets remains poor. "New York harbor is quiet," the trader said, adding that the arbitrage from Europe to the US would only work for specific grades, while an unusual "reverse arbitrage" from the US Gulf Coast to Europe remained open but is "difficult to work."
Demand for naphtha from West Africa also remains slow, the trader said. "A couple of fixtures were done recently for Nigeria, but there's no underlying support due to the subsidy issue and exports to West Africa are still way below normal volumes."
