The naphtha market has witnessed remarkable strength on a crack basis into the new month, with the softness in naphtha offset by a weaker Brent futures complex in Northwestern Europe and Asian markets. For instance, while the Oct’24 NWE crack rallied from -$5.00/bbl a fortnight ago to -$3.25/bbl on 09 Sep (at the time of writing), the Oct/Nov’24 NWE naphtha spread weakened from $6.75/mt to $5/mt at the same time.
In line with this weakness in NWE naphtha flat price and spreads, Onyx’s COT data highlights selling in the NWE crack and spreads from a range of players over the past fortnight, with trade houses notably net selling 1.9mb of the Oct’24 crack by 06 Sep. In the same vein, MOPJ spreads saw nearly 890kb of net selling from trade houses – albeit recording 130kb of major/NOC buying over the past fortnight.
The naphtha E/W, which considers the difference between NWE naphtha and MOPJ, strengthened at the end of August but simmered off afterwards, in line with an increase in trade house and major/NOC selling in this period. In addition, the TC5 freight (from the Middle East to Asia) continues to weaken across the curve. While the E/W’s correlation to TC5 has been more muted recently, the two contracts remain positively correlated (+12%), indicating that the weaker freight may be contributing to the softness in the E/W.
Looking at correlations among contracts in the naphtha complex, we see the naphtha E/W flip from a negative correlation to Brent and WTI last week to a small positive correlation this week. Within the individual contracts, MOPJ and NWE naphtha cracks shifted from being somewhat uncorrelated last week to being slightly positively correlated this week. At the same time, both contracts became more negatively correlated to Brent, highlighting that this week’s performance in naphtha was more driven by crude than the product itself.
Open interest has been concentrated in the M1 and Q1’25 tenors, with the concentration in Q1’25 suggesting stronger winter demand for naphtha as gasoline blenders transition to winter specification gasoline. This perspective is reinforced by the fact that the M1 gasnaph shows an open interest of 1.56 million barrels, which is 45% below the five-year average, whereas the Q1’25 gasnaph has an open interest of 4.10 million barrels, 125% above the five-year average.
We also see weaker demand-side signals in the prompt amid a decline in India’s oil demand in August. The country’s oil demand declined by 6.68% m/m and 2.6% y/y to 18.35 million mt in Aug’24 (Jul’24: +7.5% y/y). India’s naphtha demand declined by 3.8% y/y in Aug’24 (Jul’24: +10.5% y/y).
In other news, Chevron’s El Segundo refinery in California reported that its 35kb/d hydrotreater was shut on 07 Sep morning. Citgo’s refinery in Corpus Christi, Texas, finally saw its 30kb/d catalytic reformer restart on 07 Sep evening after being shut on 21 Aug.
