Bullish sentiment has taken hold in global oil markets due to geopolitical risk in Kurdistan, OPEC’s increased confidence that their production and export cuts have started to take effect, and recent storage data from China which implies that the appetite for energy in the world’s second-largest economy may yet have room to grow. This bullishness has understandably translated to the refined product market, as NYMEX RBOB front month futures prices continue to rise and are on track to break $1.7/gallon. Gasoline prices might make the general interest news media headlines, but the tightness of the market also translates to an unsung hero of the petrochemical industry; naphtha. Crack spreads for this product continue to widen in Asia Pacific. Navarik Data furthermore confirms that we see a tighter Naphtha market on both the US West and Gulf Coasts.
Confirmed volumes on the water and nominated to load out of PADD 3 until the end of October suggest that projected naphtha exports are up to the highest levels seen since March, but well below this time last year. This suggests that the demand for the product remains high but supplies are tight enough that the barrels are not being pushed out with the same urgency, especially considering that the recent lows were due to hurricane disruptions which have mostly abated. Meanwhile, this tightness is also reflected in PADD 5. There, when considering the overall volume of movements (since the inflows of naphtha are typically heavy naphtha and used as an aromatic whereas the outflows of naphtha are light naphtha used as a feedstock for petrochemicals) we see that 2017 volumes are considerably lower than in Q2 2017 and are projected to fall below 2016 levels.
All in all, it appears to be harder to get a barrel equivalent of naphtha in the Atlantic as well as the Pacific. The fact this trend has jointly appeared on both sides of the Panama Canal should give some credence to oil bulls, since this suggests the issue is a question of underlying global market fundamentals rather than a localized shock. Navarik Data’s suite of forward-looking data products is perfectly placed to advise if this trend continues or collapses.
Times of India, Oct 23 2017
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