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European light ends have continued to find demand, with trans-Atlantic arbitrages continuing to be one of the biggest balancing factors moving forward.
Northwest European gasoline prices rose sharply in the week to Nov. 27, on the back of a rally in the wider crude oil complex. Despite that, the demand outlook for the road fuel remains subdued amid a dearth of buying interest as lockdown restrictions across much of Europe see personal mobility heavily impaired. That has kept pressure on the gasoline crack, which was assessed at 65 cents/b on Nov. 27 to be at an average over the month of 77 cents/b, down from an average of $2.47/b over October. Poor refining margins for gasoline are likely to persist until there is a significant recovery in gasoline demand. A return to a contango paper market may encourage surplus gasoline to be stored to await higher prices in January and February. On Nov. 27, the January FOB AR Eurobob barge swap was assessed at a $5.25/mt premium to the December swap.
In the Mediterranean gasoline market, lower refinery run rates has seen a lack of supplies offered to the spot market, with liquidity drying up during the second half of November. The supply tightness is set to ease during December, with arbitrage volumes expected from Northwest Europe. Sources said much of this supply will find a home in North African short markets, with not much demand from buyers in Spain and Italy where lockdown restrictions continue. In the week commencing Nov. 30, 780,000 barrels of gasoline is expected to flow from Northwest Europe to the Mediterranean, up 69% on the week, according to data intelligence company Kpler.
The European naphtha complex started balancing at the end of the week ending Nov 27 after pressure seen on the crack spread, partially on a rally in flat prices mirroring the trend in the crude oil complex. Naphtha CIF NWE December crack spread against ICE Brent crude oil equivalent contract reached a 3-month low on Nov. 25. at minus $3.45/b. The crack spread has rebounded towards the end of the week and expected to strengthen further, while on late Monday trading session seen at minus $2.9/b.
The complex was expected to see support, although this is for now concentrated on robust petrochemicals producers' demand. The extent of the support will be clearer after the determination of CP prices for December for ethylene and propylene, which have seen tightening supply and were expected to remain firm. On the pricing end, naphtha remains more competitive against the alternative feedstocks LPG, which is not expected to change into the week. Propane CIF NWE December swap contract against naphtha CIF NWE equivalent closed at minus $12.25/mt on Nov. 27., up from minus $13.75/mt week on week. That was well above the range of minus $50-$60/mt where petrochemicals producers often start maximizing naphtha utilization rates.
Demand for naphtha blendstocks was expected to remain limited, while excess heavy naphtha volumes sent on arbitrage basis earlier in the month to Asia had generated and overhand east on limited demand, therefore leading the East-West spread to a sharp decline. Specifically, The December East-West spread -- the premium of the CFR Japan naphtha cargo swap over the CIF NWE equivalent -- was assessed at $14.25/mt on Nov. 27., lowest since July 29. Volumes from the Mediterranean and Black Sea moving to North West Europe for the week starting November 30 are estimated to be 160,689 mt, comparing to 31,620 the week before, according to Kpler intelligence firm. Higher volumes for the route, commonly indicate a closed arbitrage East, as Mediterranean volumes usually move to Asian destinations. Additionally, naphtha volumes on water in the Asia-Pacific region have increased for the week to November 29, with approximately 561,589 mt estimated to be remaining on water for more than 7 days, comparing to 499,566 mt the week before, according to Kpler.
Northwest European propane was higher in outright price terms on the week, with the market assessed at $385.25 Nov. 27, up $21/mt from Nov. 20. The physical market was weaker against the paper market to be assessed at a 75 cents/mt discount to the December swap. Domestic heating demand has been lackluster as winter temperatures have not yet impacted demand in markets such as Germany and Poland. However, positive demand sentient is growing among traders on expected colder weather and a subsequent uptick in demand in the coming week.
From a feedstock perspective, both propane and butane remained less favored compared to naphtha. Both propane and butane were traded at a discount to naphtha CIF NWE cargoes at the end of last week assessed at $17.50/mt for propane and $6.75/mt for butane. The discount was not wide enough for buyers to consider an increase of throughput however, sources said. With a potential upside for LPG in the coming month on the back of falling temperatures, the discount is not expected to widen in the coming week.
Butane coasters in the West Mediterranean had fallen in value against naphtha to a near three-month low on the back of improving supply availability, before rising again finishing the week. FOB west med butane closed at $458/mt Nov. 27 representing 113.7% as a proportion to naphtha. Some volatility was experienced in the market as traders looked to fulfill shorts into North Africa at different dates to tons being offered ahead of the holiday season.
US LPG exports to Europe and the Mediterranean so far in November have fallen from October as lower supply levels in the US push Gulf Coast prices up, closing the arbitrage to Europe. Expected volumes of US LPG arriving into Europe in November were at about 372,000 mt, according to commodity data company Kpler, with 121,000 mt bound for Northwest Europe and 251,000 mt for the Mediterranean. In October, an estimated 824,000 mt of LPG was sent trans-Atlantic from the US, with 421,000 mt going to Northwest Europe and 403,000 mt to the Mediterranean and North Africa.