The front-month mogas/naphtha spread -- the premium of the front-month Eurobob gasoline swap to the equivalent CIF NWE naphtha swap -- fell to a three-week low on Wednesday, on the back of a weaker gasoline complex.
The spread was assessed by Platts at $60.25/mt Wednesday, down from $66.75/mt. This would be the lowest since January 8, when the same spread was assessed at $58.75/mt.
The spread had peaked to a near four-month high on January 27, relatively unusual for the season, on the back of demand-driven strength for the gasoline market and healthy arbitrages from out of Northwest Europe.
The European gasoline market has seen a reversal in direction over the past week, amid weaker prompt cracking margins on closed arbitrage options and seasonal weakening of demand.
After falling 19% Tuesday, the front-month EBOB gasoline barge cracks sank further Wednesday, shedding $1.40/b to $7.70/b Wednesday, tracking weakness pervading the US RBOB gasoline futures market.
"We see the [European] market getting weaker, demand is lower, and there is good production still of winter gasoline. We are always filling up the tanks at this time of year. That said demand has not been so bad for the time of year. We're into the lowest demand month now, February is always the lowest time of year," a trading source said.
The naphtha market has also been under downward pressure on the back of closed arbitrage opportunities to Asia, resulting in an increase in length of material available in the region.
While talks of run cuts from Russian refineries have partially offset the bearish sentiment in the naphtha market, increased prompt selling interest has flipped the market structure into a stable contango.
"Naphtha is following gasoline at this stage -- there's a lot of pressure on blending grades of naphtha," said a naphtha trading source.
Eurobob gasoline barges were assessed at $345/mt Wednesday with a $10.50/mt discount to the front-month swap, while the physical CIF NWE naphtha market was assessed at $297.25/mt with a $2/mt premium to the March CIF NWE naphtha swap.
