Naphtha

February 7, 2020

The Research Team reviews the Naphtha market

 

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7 February 2020

  • We turned bearish on short-term supply conditions. While outages in keep importing countries continue to climb, the opposite is observed in exporting countries which would negate some of the upside created with lower domestic production. Our implied forward supply flows indicator continues to indicate loosening conditions in the short-term. We expect this supply pickup to peak at around week#8-9. Our implied inventory index oscillator continues to weaken as our model continues to pickup inventory buildup.
  • We turned bullish on overall demand conditions. Petchem margins continue to rebound as the combination of the slump in feedstock prices as well as firmer product prices help to support overall margins. Our spot and forward demand indicators continue to strengthen as we pickup stronger physical interests across both the spot (1-2 weeks) as well as forward time frames (2-4 weeks). However, our implied LPG-Naphtha substitution indicator weakened and is at its lowest since July last year.
  • Our short-term macroeconomic view strengthened considerably since our last publication. Short-term credit conditions expanded significantly and its at one of the highest we have seen for over a year. Our currency model strengthened largely led by the broad appreciation in the currency basket of importing countries. Our implied gasoline margins too gained further and would be another price positive driver for crack prices.

 

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