Naphtha Falls Amid European Oversupply and Competition from LPG Feedstocks

European Inventory Buildup

The seasonal end of the high-demand summer gasoline blending season has left European markets with an oversupply of Naphtha. Weak regional industrial demand, exacerbated by high energy costs, means this surplus is not being easily absorbed, forcing prices lower.

LPG Feedstock Substitution

A significant headwind is the price action of Liquefied Petroleum Gas (LPG). With propane and butane prices softening, flexible petrochemical crackers are substituting Naphtha with cheaper LPG feedstocks. This fuel switching reduces the overall demand for Naphtha, capping its price upside.

Asian Cracker Demand Remains Firm

Despite the overall bearishness, demand from petrochemical crackers in Asia remains robust. The 'East-West' arbitrage window remains open, drawing surplus Naphtha barrels from the West. However, this is proving insufficient to overcome the domestic supply issues in Europe and the pressure from the weak crude complex.