The dichotomy between a weaker physical and stronger financial market continues to linger in the naphtha complex. This divergence is perplexing especially when considering the acute weakness in gasoline.
Naphtha spreads rallied in both the NWE region and Asia over the past fortnight. This strength now appears to be more pronounced in Asia, with the naphtha East/West (E/W) rallying from $16.25/mt on June 10 to $18/mt on June 18.
The M1 TC5 freight appeared to be moderately positively correlated with the naphtha E/W over the past two weeks, highlighting that while freight did likely support the E/W’s rally this week, this strength was also perhaps impacted by external factors such as stronger MOPJ spreads. Despite this support in the spreads, cracks have been less remarkable in both regions and have seen pressure from sellers alongside stronger crude. Cementing this pressure, M1 NWE margins weakened by $1.10/bbl over the past fortnight despite stronger oil products because of a stronger Dated Brent complex.
Finally, NWE naphtha and MOPJ cracks shifted from a positive relationship to a negative one in equal magnitude, highlighting that last week’s prices may have been more a product of crude rather than flow in the naphtha contracts.
