European naphtha crack futures reached a three-month high Tuesday amid talk of short covering and a potential uptick in demand from petrochemicals end-users, market participants said.
The June CIF Northwest Europe naphtha crack spread -- measuring the relative value of the product to the crude from which it is made -- strengthened on Tuesday to minus $6.77/barrel from minus $7.45/b Monday, while the July crack rose to minus $7.35/b, the strongest level since February 28, 2013, when it was assessed by Platts at minus $5.81/b.
"The market has been getting stronger and actually it caught a lot of people by surprise," said one trader, adding that there has been no obvious changes in fundamentals over the last couple of weeks.
"Overall the physical market is slow, but there has been some short covering," said another market participant.
Another industry source said Tuesday's hike may be partly due to the fact that ethylene prices were fixed that day.
"You could argue that naphtha is just bouncing a bit," said a trader. "Gasoline continues to be strong, but higher naphtha is killing the blender's margins, that's why there is not great demand for naphtha to be used for gasoline blending."
