Light end summary: Gasoline-naphtha spread at 7-month low
Quantum Commodity Intelligence - Gasoline tumbled the week ending 18 Nov. as supply bounced back in the ARA barge market, weighing on its premium to naphtha, which in turn is receiving support from Asian petchem demand.
Notional refining margins on Eurobob oxy E5 gasoline dropped below $10/b this week for the first time in two months, from $12.31/b on 11 Nov.
Values have been pushed lower by the return of prompt availability, with liquidity in the ARA barge market hitting 100kt this week, more than double for the whole of October.
Totsa has unloaded the majority of volumes, representing about 85% of November’s sales, coinciding with the end of French refinery strikes last month.
The return of prompt availability has weighed on physical values, with cash premiums over swaps falling to $42/mt by Friday, from over $100/mt last week.
Stocks have ticked up at the same time, with independently-held gasoline in the ARA region hitting a five-week high 1.27 million tonnes as of 17 November.
US stocks also ticked up, climbing 1.1% from an 8-year low at the end of October to 207.9 million barrels as of 11 November.
Demand from the European gasoline blending pool has softened owing to a fall in transatlantic exports amid a drop-off in US demand.
Naphtha refining margins hit 4-month highs this week at -$12.66/b against ICE Brent in northwest Europe by Friday’s cash close and -$8.57/b in Asia.
It has pushed the gasoline-naphtha spread in Europe to around $22/b in the physical market (Eurobob barges – naphtha cargoes NWE) and below $17/b on the paper (M1 swaps), its lowest on both since April.
A narrower spread indicates a shift in demand away from the gasoline pool towards the petrochemical sector, especially in Asia.
Asian crackers are due back online this month after maintenance, with India’s largest refiner - Indian Oil Corp - saying it was seeing a rise in in the country’s petrochemical demand.
Regional stocks have been falling steadily for some time, with light-end inventories in Singapore at a seven-month low 13.2 million barrels this week.
Light distillate stocks in Fujairah also fell last week, down 6% to 6.8 million barrels, driven by lower exports.
According to the IEA, naphtha exports from Fujairah last month totalled 160,000 bpd – the highest since at least 2017 – most of it likely heading to Asia.
The main drag on regional petrochemical demand has been sluggish economic growth in China, as it continues with its zero-Covid policy.
But as China’s refineries ramp up to meet higher product export quotas, petrochemical demand has increased.
Supply has simultaneously tightened on a heavy European maintenance schedule and the loss of French refinery output for most of October because of industrial action.
Europe is still importing around half its naphtha from Russia, which it will have to replace after sanctions begin on 5 February.
Paper markets are pricing in an increasingly tight market, with backwardation on M1/M2 naphtha swaps up to $6/mt this week for the first time in six weeks.
Petchem demand has helped pull propane cracks higher this week, firming over $8/b on the week to a two-month high -$40.35/b by Friday’s close.
Colder weather in Europe and the US has added further support for heating demand, although stocks remain plentiful going in to the winter months.