The contango between front and second-month CIF Northwest Europe naphtha swaps is at its widest in 26 months as the force majeure at Shell's Moerdijk cracker exacerbates the oversupply in Europe and amid a weak Asian market, trading sources said.
The contango was assessed $5/mt higher Wednesday at $6.50/mt, the widest since May 31, 2012, when it was $7/mt.
The front-month CIF NWE crack swap fell $1.35/barrel Wednesday to an eight-week low of minus $6.75/barrel, and the CIF Northwest Europe naphtha cargo value was $18.75/mt lower at $742.50/mt, its lowest level in 27 months.
"There is a lot of product available for prompt delivery and demand is not there," a trader said, adding nobody in Europe seemed interested in open specification naphtha, and adding that the sharp weakening of the naphtha paper structure was due both to the Moerdijk cracker being offline and falling premiums in Asia.
Shell declared force majeure on ethylene and propylene production at its 900,000 mt/year steam cracker at Moerdijk in the Netherlands at the end of last week, following a steam leak at the unit last Thursday.
The cracker, which usually uses 100,000-200,000 mt of naphtha per month as feedstock, could stay offline until the end of the year, market participants said.
"I think the paper market is reacting to Shell's force majeure requiring them to sell an estimated 200,0000 mt of material that would have otherwise been cracked in Moerdijk," a trader said.
One European end-user said the weakening of naphtha paper structure had more to do with the increasingly softer Asian market.
"It is due to the fact that Asia stopped buying," he said.
The front-month east/west spread -- the premium of CFR Japan naphtha cargo swaps over the CIF NWE naphtha cargo swap -- narrowed to $28.50/mt Thursday from $29/mt Wednesday and $30/mt Tuesday as naphtha was offered lower in Asia, leading to the deepest physical discounts in over two years.
At noon London time, the contango between the front and second-month CIF NWE Europe naphtha swaps was heard at $7.25/mt and the front-month CIF NWE naphtha crack was at minus $7.80/barrel.
