24 Feb 2022 | 11:15 UTC

CIF NWE naphtha cargo prices hit over 7-year high on Russia-Ukraine escalation

Highlights

CIF NWE cargo prices rise 13.69% on month

Geopolitical concerns support naphtha paper market

CIF NWE naphtha cargo prices extended gains -- reaching a level not seen since Aug. 5, 2014 -- as an increasing bullish crude oil complex amid Russia's invasion of Ukraine, coupled with tight supply for naphtha saw prices hit $878/mt on Feb. 23.

Although market participants had expressed a change in fundamentals in the week beginning Feb. 21, as demand weakened ahead of a new wave of expected buying prior to the transition to summer specification gasoline; supply in Northwest Europe stills remains tight.

Weather delays in the Mediterranean and the Black Sea, in combination with more favourable cracking margins for middle distillates over light ends continue to contribute to the upward momentum in prices.

Likewise, in the Asian naphtha market, prices remain supported by tight supply caused by a closed arbitrage between Europe and Asia as the East-West spread returned to negative on Feb. 23.

Another contributing factor to current prices includes the paper market, where front-month swap values have matched physical prices, rising 13.16% on the month to $857.50/mt on Feb. 23.

However, pressures on the paper market have come from external macro fundamentals factor of a bullish crude oil complex, arising from geopolitical concerns in Russia and Ukraine, Brent crude oil futures reached $105/b in the morning trading session on Feb. 24.

Crude oil futures have been volatile in recent sessions amid escalating tensions between Russia and Ukraine, after the latest round of Western sanctions against Russia for its recognition of the rebel-held Donetsk and Luhansk regions, Platts reported earlier.

Despite the change in European demand fundamentals, external factors continue to weigh on the naphtha market; with Ukraine officials announcing that Russia had launched a "full-scale invasion", concerns over potential disruptions to supply of energy and resources continue to impact trading sentiment, supporting the upward trend in CIF NWE naphtha cargo prices in the near term.