The naphtha market witnessed a bearish shift in sentiment over the past fortnight, driven by dissipating geopolitical risk premia and deteriorating demand narratives ahead of the Northern Hemisphere winter. This bearish tilt led to weaker pricing in the second half of the October delivery cycle in both Europe and the East, with physical premiums dropping $6 w/w to $2/mt in Asia and $2 to -$1/mt in Northwestern Europe (NWE). While NWE naphtha continues to see thin liquidity into this week, MOPJ (Mean of Platts Japan naphtha) saw a flip to bid MOC windows towards the end of last week and into this week.
The front-month NWE naphtha crack strengthened in the first half of the fortnight, climbing to -$2.10/bbl on 15 Oct before dropping to -$2.75/bbl on 22 Oct (at the time of writing). The heightened volatility in crude may have made the market more risk-off from naphtha cracks. Still, the NWE naphtha crack remains unseasonably high considering the past few years, with levels hovering around -$6.80/bbl this time last year and at -$13/bbl this time in 2022.
The naphtha East/West (MOPJ vs NWE naphtha) was more rangebound into the past fortnight, although we witnessed a reversal point at the intraday low of $20.25/mt on 16 Oct, following which the contract saw more support. However, 22 Oct’s Singaporean window recorded offers in the naphtha E/W. The M1 TC5 freight (from the Middle East to Asia) softened 3% w/w and 6.8% over the past fortnight to $36.30/mt, which may pressure the E/W although the recent support in MOPJ MOC may support the differential.
A caveat to MOPJ’s current strength comes from a 5.38% decline in South Korea’s exports of toluene m/m to 33,079 mt in September, alongside a 35% decline m/m to 14,355 mt in imports to a decline in toluene demand, as per data by Korea Customs Service. However, we continue to wait for the impact of China’s recent fiscal measures on the country’s petrochemical sector.
In other news, Saudi Arabia’s light distillate inventories – i.e., gasoline, naphtha and LPG – climbed by 1.63% m/m and 3.5% y/y to 3.979 million mt in August as per data by the Joint Organisation Data Initiative. However, the Kingdom’s naphtha stocks fell by 17.22% m/m to 399,000 mt in August, shifting away from a four-month streak of increases.
Q1’25 Northwest European and Asian refinery margins fell over the past fortnight, dropping $0.35 and $0.90 to $3.75/bbl and $6.30/bbl, respectively. This decline in margins came by despite a weaker Brent and Dubai crude complex amid a drop across refined products, with the weakness most pronounced in gasoil in both regions.
