Light ends prices reach multi-year highs amid bullish crude, rising demand

Amid strong gains in the wider crude oil complex, outright values in gasoline, naphtha and LPG markets reached multi-year highs June 23, while crack spreads for light products also strengthened on the day.

The front-month Eurobob FOB AR barge swap was assessed at $696/mt June 22, up 1% on the day and the highest outright value since May 2019. In afternoon London trading June 23, the Eurobob swap was seen trading above $700/mt, also for the first time since May 2019.

Demand for road fuels has supported gains in crude oil with sources pointing to healthy demand for gasoline within Europe.

The return to a more bullish outlook for demand supported gasoline's relationship to crude oil. The front-month gasoline crack spread to ICE Brent was assessed June 22 at $9.60/b, up 38 cents/b on the day and the sixth consecutive day of gains. In afternoon London trading June 23 the crack spread was trading at around $9.80/b.

Naphtha

The strength was also evident in the European naphtha complex where the flat price reached multi-year high levels for several consecutive days over the previous week, closing at $640.50/mt June 23, the highest since October 2018.

Although support for flat prices stemmed from bullish sentiment in the crude oil complex, physical demand for both feedstock and blendstock grades was strong, which coupled with tight supply led to a spike in the market structure and crack spread.

The July CIF NWE naphtha crack spread closed at minus $2.80/b June 22, up 18.9% from the previous week, and in June 23 afternoon trading was seen as high as minus $2.45/b. The strength was particularly evident as crude oil prices also edged higher.

The backwardated structure had also steepened over the week with July/August at $7.50/mt June 22, up from $4.75/mt the week before. In late afternoon trading June 23 the differential was seen trading as high as $8.25/mt.

Petrochemical producers continued supporting naphtha despite its premium over alternative LPG feedstocks due to tight ethylene and propylene markets and limited LPG arbitrage from the US. Downstream demand however was expected to edge lower for July. Blending demand on the other hand is seen rising further in Europe as well as from the US, which will further support naphtha blendstocks into the summer.

LPG

LPG also reached multi-year highs as the oil complex pushed flat prices higher, supported by robust demand for both propane and butane as a petrochemical feedstock.

Propane CIF ARA large cargoes were assessed at $579/mt June 22, the highest level since October 2018. Similarly, butane CIF NWE large cargoes were assessed at $560/mt, also the highest point since October 2018.

LPG has been trading at strong discounts to naphtha, which has positioned butane and propane as favored feedstocks for crackers in the region.

"In NWE there's appetite from petchems for C4, good support from them at the moment," a market source said.

The strength was also supported by the supply side, because an unworkable arbitrage from the US meant less LPG was making its way to Europe.

"The arb from the US does not look good right now," a market source said.

Typically, propane and butane weaken versus naphtha during the summertime due to a lack of alternative demand such as gasoline blending and domestic heating.