Naphtha prices surge after Platts bars Russia cargoes from pricing

25 Mar 2022

Quantum Commodity Intelligence - The European price of naphtha – a key feedstock for making gasoline and petrochemicals – rallied strongly on Friday after benchmark provider S&P Global Platts barred Russian barrels from the assessment process.

Naphtha April swaps for delivery into northwest Europe rose $37.50/mt on the day to $1,021.50/mt, according to trade sources, after the price reporting agency said its assessment of physical cargoes, which is used to settle financial derivatives, would not include Russian material.

Cargoes were being offered at a whopping $35/mt above April swaps versus $15/mt the day before.

The relative value of April naphtha swaps versus Brent – the so-called crack – rose by $3.19/b to -$2.19/, a huge daily move that is rarely seen.

"Platts has observed that, for a significant portion of the European naphtha spot market, material of Russian origin is no longer deemed merchantable on the same basis as other production regions," it said in a note published Friday morning.

"As such, Platts assessments of European naphtha will no longer reflect Russia-origin product, effective immediately," it added.

Difficult choice

Platts, which is the world's largest price reporting agency, publishes daily assessments of tradeable value for naphtha cargoes in the region.

These are then aggregated to a monthly average which is used to settle financial derivatives that are cleared on the ICE exchange and used by petrochemical and gasoline producers to hedge future exposure.

Platts runs a price discovery window to determine fair value and invites companies to bid and offer.

However, it emerged this week that open origin cargoes of naphtha were being offered at more than a $10/mt discount to non-Russian origin, leaving the price reporting agency with a difficult choice on determining fair value.

Friday's move comes three days after Platts said in a note on Tuesday that it would continue to publish restricted origin indications, but would reserve the right to "normalise" them to the open specification and reserved the right not to include restricted origin bids and offers at all.

That meant the relative value of naphtha fell to the lowest level in years versus crude on Wednesday amid fears the index would be pushed down by offers of untradeable naphtha of Russian origin.

"They were caught between a rock and a hard place on this one. There's going to be a lot of people pissed off at this," said one market source.

Other sources said the writing was on the wall that Russian naphtha was untradable following a u-turn by energy major Shell after it came under fire for buying cheap Urals.

The decision also raises questions about Platts' approach to its diesel assessments as Russia is a big seller of the distillate to Europe.

Platts' decision came on the same day that the EU failed to agree a common approach on whether to ban Russian oil.