Northwest Europe naphtha cracks and the balance-month, front-month backwardation have touched new lows as the arbitrage from the Mediterranean to Asia is now closed, sources said.
On Tuesday's close, the CIF NWE front month naphtha crack swap fell $0.55 to minus $6.00/barrel, the lowest since January 17, while the March to April backwardation narrowed $1.25 to $12.00/mt, a two-month low, Platts data show.
In European morning trade Wednesday, the March to April backwardation was heard narrowing further to $11.00/mt, traders said, while the front month crack was trading at minus $5.70/b.
"The arb is closed. I haven't heard of any new fixtures," a trader said Wednesday.
The arbitrage opportunity, which opened in mid-February due to a naphtha shortfall in Asia, first started to diminish last week, shutting out new participants, sources said.
The current lack of flows to Asia is causing tightness of supply both in the Med and NWE to ease.
"I think Med exports kept NWE reasonably strong on the back end of Feb. But since then the strength has eased off with fewer fixtures for mid March," a second trader said Tuesday.
"Front cracks have been weaker because no one can work product east," the second trader said, going on to say that lighter, open spec naphtha is attracting premiums of mid to low teens over Mean of Platts Japan. This compares with high teens heard since mid-February when Asian demand was booming, he said.
The last clean tanker naphtha fixture heard fixed from the Med to Asia was Four Wind, 80,000 mt, chartered by Shell at a $2.675 million lump sum for March 15 loading dates, shipping sources confirm, while a Total fixture for similar loading dates remains on subs, the first trader said.
The fall in premiums over MOPJ is a key indicator the arbitrage is unworkable, sources said, given the CFR Japan naphtha cargo premium to the FOB Med cargo has remained under downward pressure since the arbitrage first opened.
At Tuesday's European close, the premium of the CFR Japan price to the FOB Med cargo price narrowed further by $4.63 to $33.00/mt, with the Japan cargo assessed at $1087.00/mt and the Med cargo assessed at $1054.00/mt. In the swaps market Wednesday morning, the Asian naphtha market was trading at $5.50/mt above the European market, down $1.00/mt day-on-day, the second trader said.
Moreover, the clean freight rate for 55,000 mt, Long Range 1 vessels (45,000-79,999 dwt) remains at over a four-year high at $45.45/mt, putting a lid on the arbitrage opportunity, the two traders said.
