Mediterranean naphtha cargoes head to US Gulf in an unusual arbitrage

There has been a recent uptick in demand for gasoline blending grades in the US Gulf coast over the past week, adding some support to the weak European market, according to market sources.

"We are seeing an uptick in demand from the US, and a few more cargoes going there," a market participant told S&P Global Platts.

The uptick in demand for blending grades of naphtha saw market players racing to get cargoes over to the US Gulf, with rumors that Koch had three or possibly four cargoes of naphtha headed to the US Gulf.

In particular, Koch was heard to be importing one cargo from Repsol in Spain and one from a supplier in Skikda, Algeria. The naphtha was purchased in late July.

"[Koch] are sending one from Skikda, one, maybe two from Cartagena, and one from Algeciras," a trader said, confirming that he had sold to Koch out of Skikda.

Two sources familiar with Repsol also confirmed the sale to Koch. Sources at Koch declined to comment.

A trading source confirmed there had been a small uptick in demand from the Gulf, but added that blenders' requirements were "already covered, and there are too many cargoes headed there now."

Another trader said: "There are floating local barrels on the water on the US Gulf Coast; why would they take European barrels? It does not make sense."

Other sources are less swayed by talk of rising demand from the US Gulf, with one end user saying he thought "people are talking their books."

Several sources said they were not sure how Koch was making the economics work on the arbitrage.

"I believe that they are making it, but I obviously don't know what their economics look like so it's hard to say from the outside," a trading source said.

European naphtha usually travels no farther west into US markets than New York. The reported Koch orders and three naphtha cargoes delivered earlier this summer to Vitol for gasoline reflect a shift in trade flow, market sources said.

A source familiar with Vitol's purchases in June confirmed those deals.

"It's usually difficult for the Gulf to beat the Harbor as a destination, but I think the alternatives to Asia were so bad that some of these guys probably did their best to find the best value and the best market liquidity," a US blendstocks trader said.

The naphtha arbitrage from Europe to Asia has been closed for most of the year amid increased weakness in the Asian naphtha market, especially this summer. Without the traditional Asian outlet, Mediterranean naphtha cargoes have had to find other homes, with some of them offered in Northwest Europe, which didn't really need the additional barrels.

Source: Platts