NWE naphtha values boosted by low supply from Russia on gasoline strength

London — Low naphtha supply from Russia as a result of surging gasoline demand there has offset the impact of poor blending economics in Northwest Europe and weak petrochemical demand, pushing values higher.

Naphtha CIF NWE was assessed at $386.75/mt on July 23, rising 4.5% over the course of the week, according to S&P Global Platts data. The crack spread against ICE Brent crude oil September futures closed at minus $1.53/mt on the day, up 48% week on week, despite a price rally in the crude oil complex.

Deep uncertainty continued to dominate the European naphtha complex, with blending economics too poor to support naphtha blendstock grades and competition with LPG for feedstock grades for petrochemical demand still fierce.

However, several factors restraining supply, most notably limited naphtha exports from Russia, could be providing some price support.

Russia, a seller of significant naphtha volumes to Europe, is not expected to increase its exports in the near term, putting pressure on supply availability.

Shortages of gasoline in Russia, where demand recovered unexpectedly to pre-coronavirus levels and for high octane grades even surpassed last year's levels, is attracting naphtha as a blendstock for Russian refineries.

"The energy ministry has asked for a maximum gasoline supply on the domestic market," a Russia-based trader said. "Many who wanted to make naphtha will have to maximize gasoline."

While Gazprom's Astrakhan refinery, a producer of light products such as naphtha, is returning to operations after a turnaround, Gazprom's Surgut gas processing plant is set to start scheduled works, which is likely to affect naphtha flows.

Gasoline demand surges in Russia

Expectations of an increase in oil throughput in August after the latest OPEC+ output decision is also unlikely to result in more naphtha production as it would go into the gasoline pool, where naphtha is used as a blendstock.

"I don't really see something much bigger in export terms than during the previous month," a trader in Northwest Europe said. "Local consumption is quite high versus the production anyway as they are still having low runs, therefore most [naphtha] is staying in Russia."

After tumbling by almost 70% in April and May due to strict lockdown measures across Russia, gasoline demand is now set to exceed last year's levels by around 3% as people opt for personal over public transport and many set to drive to Russian holiday resorts rather than flying abroad.

In order to cover the gasoline shortfall, Russia is likely to lift the ban on oil products imports before October as originally planned.

Furthermore, Russian refineries are expected to be allocated more crude in August, after deputy energy minister Pavel Sorokin recommended a maximization of oil supply to Russian refineries. However, the extra output is unlikely to result in more naphtha exports.

Approximately 586,122 mt of Russia naphtha has loaded so far in July bound for Northwest Europe, down 18% from June, according to data intelligence firm Kpler, with exports from the Baltic around 24% lower. Russian naphtha loaded so far in July and bound for the Mediterranean (Black Sea inclusive) totaled 205,998 mt, down 41.5% month on month, according to Kpler data.