News Code : 43248

Petrotahlil :Spot naphtha prices have been falling since early July both in Asia and Europe with cumulative losses reaching 15-16%. The recent levels suggest the lowest levels of 2 years in Europe and 8 months in Asia. 

Oil remains in the driver’s seat

Crude oil is the main driver behind the downtrend of the spot naphtha market. Disregarding a short recovery in the last week of July, crude oil prices were on a trajectory path since the beginning of last month as WTI (NYMEX) benchmark lost 10% and Brent recorded a larger decrease of 12% in total. 

Will production cuts help overcome fears of economic slowdown?

After marking the largest daily gain in a month on Friday upon the news that Saudi Arabia will respond to the recent weakness by limiting exports to below 7 million barrels per day in September, crude oil prices are likely to face fluctuations in the days to come amidst conflicting factors.

Although OPEC continues to slash output, the ongoing trade dispute between China and the US fuels fears of an economic slowdown as it globally pressures demand and inevitably affects crude oil prices. 

Opinions vary on oil demand

Some analysts argue that the third quarter will be the high season for oil consumption and global demand will pick up in the second half to help gradually reduce oil inventories. 

However, others are mostly drawing a weak outlook. The International Energy Agency (IEA) said on Friday mounting signs of an economic slowdown had caused global oil demand to grow at its slowest pace since the financial crisis of 2008. 

Pointing to the fall in demand and non-OPEC supply growth next year, Bernstein Energy said, “We believe that OPEC needs to cut by a further one million barrels per day in 2020 if they are to defend oil prices at $60 a barrel.”

Stocks have also built in naphtha market

Although the majority of the losses in naphtha stems from the upstream crude oil market, it is solely not the main factor. Thin demand and muted activity caused supply to build, contributing to the weakness of naphtha prices.

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