The Northwest European naphtha discount to Eurobob gasoline has hit its narrowest in nearly seven months, following a collapse in gasoline cracks, Platts data show.
At Monday's European close, CIF NWE naphtha cargoes were assessed at $959.75/mt, down $3.75/mt from Friday. That put naphtha cargoes at a $57.25/mt discount to FOB Rotterdam EBOB gasoline barges at $1,017/mt.
This is the closest the two markets have traded since March 20, Platts data shows, when naphtha cargoes were assessed at the same differential to EBOB gasoline barges.
Tuesday morning, the paper gasoline-naphtha spread was heard bid at $46/mt and offered at $49.50/mt, a trader said.
The key catalyst for the drop in EBOB's premium to naphtha was a collapse in prompt gasoline cracks and spreads, market sources said on Tuesday.
The balance-month FOB Rotterdam EBOB gasoline crack swap, which measures product price performance against ICE Brent, has halved since October 8, closing at $9/barrel on Monday.
Similarly, over the same period, cash premiums on FOB Rotterdam EBOB gasoline barges have shed $55.25/mt, closing European trading on Monday at a $17/mt premium over the November outright swap.
"Demand is decent, but people seem confident that refinery supply is going to come through in a bigger way over the next two weeks," a gasoline trader said of the bearish turn to the market, adding that the transition to winter-grade gasoline production has helped to boost prompt supply.
Winter-grade gasoline, which can be blended with inexpensive butane in order to increase its cold-weather properties, traditionally trades at a discount to summer-specification gasoline.
NWE naphtha typically trades at at narrower discount to EBOB after the seasonal switch to the winter specification material in September and October.
"Moving into winter, it is normal to see narrower spreads," a trader said.
However, market sources said that the narrower spread is unlikely to affect blending activity in Northwest Europe, as EBOB's premium to naphtha remains at unseasonable highs.
"It's still a decent [gasoline-naphtha] spread, especially for winter," the trader said. "We have even seen minus numbers in the fourth quarter before."
According to Platts data, 2010 was the last year EBOB traded at a discount to NWE naphtha approaching winter.
In October, 2010, EBOB barges were frequently assessed at a discount to NWE naphtha, trading as low as minus $32.25/mt, Platts data shows.
