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The front-month/second-month CIF NWE spread narrowed to a nine-month low of $4.75/mt Thursday, down from $6.50/mt Wednesday, market participants said.

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The last time the premium of the front-month CIF NWE naphtha swap over the second-month naphtha swap was assessed lower was October 11, 2013, when the November/December spread was assessed at $4/mt.

"It's difficult to be as backwardated as we have been when prompt demand is poor and there is more than enough supply," said a naphtha trader. At noon London time Friday, the August/September spread was heard trading at $4.25/mt.

According to industry sources, the narrower backwardation of the naphtha paper market is also linked to the recent contango structure of the Brent crude futures curve.

The NWE naphtha market has been reported long for many weeks due to slow demand from regional end-users, but whereas demand from petrochemical buyers had stayed limited yet stable, demand from gasoline blenders has almost dried up this week as the front-month mogas/naphtha spread reached a fresh five-month low of $42.75/mt.

Thursday, The CIF Northwest European naphtha cargo value was assessed at a seven-week low of $926.25/mt, down $8.25/mt on the day. Meanwhile, the physical premium over the front-month swap remained at a year-to-date low of $2.75/mt, Platts data shows.

According to market participants, open spec naphtha is offered outside the Platts window at cash premiums of $4/mt to $5/mt over the August swap, while the few bids are made at flat or up to a $1/mt premium. "Apart from Asia, there is nothing giving support to the European naphtha market," said a trader.

The naphtha arbitrage to Asia, which was already wide open from the Mediterranean, is now reported slightly open from NWE, helped by a widening front-month East/West spread -- the premium of CFR Japan naphtha cargo swaps over the CIF NWE naphtha cargo swap -- pegged at a year-to-date high of $24/mt Friday.

However, this arbitrage risked being hindered by more expensive freight and tighter tonnage for long-range tankers. "For end-July and early-August loading LR tonnage is still very tight so I think that freight rates --certainly from ARA and the Baltics -- will remain well supported until the second half of August," said a trader.

--Virginie Malicier,
--Edited by Jonathan Fox,

Similar stories appear in European Marketscan See more information at