Physical premiums in the gasoline and naphtha markets have fallen dramatically since September 7 as fundamentals adjust to a trading environment lacking the price impact provided by Hurricane Harvey in the US Gulf Coast.
The physical premium of Eurobob barges over the Eurobob front-month swap has been falling steadily over the past week amid reduced spot buying interest as Harvey's impact fades.
Eurobob gasoline barges were assessed $6/mt lower on the day at $588.25/mt Thursday, and at a $40/mt premium over October Eurobob swap, down from a $45/mt premium the previous day.
The physical premium of Eurobob barges had reached a two-year high of $70/mt on September 7, as the trans-Atlantic route out of Europe was still spurring interest in the wake of Harvey.
In the paper market, the October Eurobob gasoline crack swap slumped 95 cents/barrel to $10.30/b at market close Thursday amid higher crude futures, while the September/October Ebob gasoline backwardation narrowed to $29.25/mt from $34.75/mt.
Not only has trans-Atlantic demand quietened down as USGC refineries and ports reopen, West African demand for gasoline has also been lackluster, limited to a few cargoes for Nigeria's Direct Sale Direct Purchase Program.
"A lot of sellers were trying to push out their barrels at the end of August and early September just to take advantage of the high flat price," a source active in the West African gasoline market said.
"Cargoes traded at $40/mt to $50/mt discount to 10 ppm barges but that's all gone now and there is only limited buying from those who won the DSDP who have their laycan to cover," the source said, adding that the glut offshore Lome had cleared a little bit.
"Cargoes are finding homes slowly, there isn't that much floating offshore, but some people are still caught with cargoes offshore."
NAPHTHA WEAKENS AS PETROCHEMICALS STEP BACK
Similarly, the European naphtha complex has been weakening with the physical market increasingly displaying signs that fundamentals are softer and the paper market continuing a rapid shift to the downside.
Market sources said naphtha demand was slackening as petrochemical requirements were increasingly covered.
"It looks like petchems have stepped back a bit and let a few cargoes remain offered," a source said, adding that there was still some buying interest for the balance of September, keeping the market "fairly balanced."
"It makes sense for the backwardation to have reduced on the front," the source said.
Other sources agreed that prompt availability was lingering.
"Some cargoes came into the market for September delivery... There are more cargoes around," said one. "Demand is not strong but there are some shorts somewhere."
Brazil is looking covered and there is the prospect that Mediterranean cargoes may look to find homes in the north, according to some sources, meaning that length could continue to build in the short term.
In Northwest Europe, cash differentials versus the front-month swap have been plummeting after hitting a 2017 high of $11.75/mt September 6, S&P Global Platts data shows. The cash premium versus front-month swaps was assessed at 25 cents/mt Thursday.
Softening physical fundamentals have also weighed on an already depressed paper market on the day, which has seen a rapid correction in the post-hurricane environment.
"I think the paper market went on fire after the hurricane and is now coming off very quickly because the bubble has burst. That was the driver. The speed of the adjustment is because the physical didn't react as much," a source said.
The October CIF NWE naphtha crack slumped 65 cents/barrel to 10 cents/b Thursday, having been assessed at 95 cents/barrel on September 6.
