The naphtha market has witnessed great strength in the past two weeks, although the front cracks don’t portray this too well due to the strength in crude, which has seen a particular boost from the expansion of conflict in the Middle East. Naphtha has also softened in early October on weaker propane and a more mixed interest in the MOPJ MOC, which was unilaterally bid in the previous week. This may be a correction as we saw significant short-covering flow, which may mean the market needs to balance, and we remain bullish in both regions. The rallying flat price was chased up in NWE, with the M1 NWE naphtha flat price rising to the highest value seen since early July, at $690/mt on 7 Oct. We have seen funds add length at these higher levels, showing prop players happy to add length at NWE flat price at these high levels.
Although we have seen this new regime in NWE naphtha cracks and spreads, Onyx’s COT data highlights mixed interest in the Nov’24 NWE crack. The Nov’24 NWE naphtha crack peaked at -$1.50/bbl on 30 Sep but has since softened to -$3.55/bbl on 8 Oct due to crude pressure and weak MOC in MOPJ. Open interest has increased above the 5-year average on 1 Oct. Trade houses increased their net short position to 1.87mb, while majors shifted to a net long overall position of 30kb as of 2 Oct. The flow in the Nov/Dec spread was quite well-matched during the rally, and there failed to be a significant net positioning change in the past 2 weeks.
The naphtha E/W, which considers the difference between NWE naphtha and MOPJ, strengthened at the end of August but simmered off afterwards, in line with an increase in trade house and major/NOC selling in this period. In addition, the TC5 freight (from the Middle East to Asia) continues to weaken across the curve. While the E/W’s correlation to TC5 has been more muted recently, the two contracts remain positively correlated (+12%), indicating that the weaker freight may be contributing to the softness in the E/W.
The Nov’24 naphtha East/West spread peaked at $24.50/mt on 4 Oct but fell to $21.00/mt by 8 Oct due to weakened international naphtha markets. MOPJ spreads also softened as European cracks showed modest declines. Trade houses reduced short positions, with a net of 142kb on 7 Oct, while majors increased their net length to over 365kb in Oct.
Open interest has been concentrated in the M1 and Q1’25 tenors, with the concentration in Q1’25 suggesting stronger winter demand for naphtha as gasoline blenders transition to winter specification gasoline. This perspective is reinforced by the fact that the M1 gasnaph shows an open interest of 1.56 million barrels, 45% below the five-year average. In contrast, the Q1’25 gasnaph has an open interest of 4.10 million barrels, 125% above the five-year average.
QatarEnergy has signed a long-term naphtha supply agreement with Shell (SHEL.L), committing to supply up to 18 million metric tons over 20 years, starting next April. This latest supply deal, part of a series with Asian and European partners, supports Qatar’s major North Field expansion, slated to begin production in 2026. The North Field, shared with Iran (where it is called South Pars), is the world’s largest natural gas field.
