Naphtha crack in Asia plunges to more than 7 month low

29-Sep-14

Naphtha crack in Asia fell to a 7-/12 month low of US$114.58/ton at the end of the previous week, amid ample persistent supplies and muted spot demand, as per Reuters. Weak Brent crude prices, which influence the direction of naphtha prices, also worked against the sellers, who try to allocate as much supply as possible to their buyers to avoid being trapped in a downward price spiral. Sellers typically have the options of either increasing or decreasing a contracted volume to their buyers by up to 10%. Brent, despite US-led air strikes against militants in Syria, has been hovering below US$100 a barrel for most of September, reaching a 26-month low at one point this month. The weak market fundamentals have weighed on term talks. Whether Asia is able to digest the glut will depend on how much naphtha Europe and the Mediterranean will ship to the region in November following two straight months of high supplies to the East. Traders were hoping that ongoing strong demand for European gasoline from West Africa and the United States could at least reduce western naphtha exports to Asia. Naphtha is also used a gasoline blend stock other than for petrochemical production. A strong draw in US gasoline stocks this week due to a string of refinery outages has opened the arbitrage from Europe.