Supply disruption and elevation in the freight charges boost the Global Naphtha market

The global Naphtha market witnesses a price gain along with favourable profit margins. With the week ending on January 26th, Naphtha prices in the US market saw a nearly 2.7% rise, moving from USD 558/MT to USD 573/MT. The surge is attributed to disruptions causing challenges in transportation, leading to higher freight charges and insurance costs. Efforts by the country to reroute vessels further complicate the task of stabilizing prices. The combination of these factors, including rerouting initiatives, is driving up production costs and subsequently increasing Naphtha prices. Approximately 100 tankers, carrying around 56 million barrels of crude oil and fuels, have been diverted from the Red Sea due to attacks by Yemen's Houthis using drones and missiles.

In Asia, the gasoline refining profit margin extended gains, and Naphtha markets gained further momentum after a tanker owned by Trafigura was attacked in the Red Sea, heightening concerns about supply disruptions in the region. The assessment of security risks for future Red Sea voyages is underway after firefighters successfully extinguished a blaze on a tanker attacked by Yemen’s Houthi group. There was a 2.6% uptick in Naphtha prices in the Saudi Arabian market, climbing from USD 605/MT to USD 621/MT. Security considerations have escalated making price management challenging amid persistent attacks on oil-carrying ships and oil cracks in the Middle East.

In the US market, the price increase is linked to the country's role as the primary supplier of crude oil to the European market, with oil rates recently reaching a seven-year high. The surge in demand and subsequent price hikes in the downstream market contribute to the overall upward trend in Naphtha prices. Concerns arise regarding prolonged and challenging diversions for low US inventories, connected to higher exports to the United States, while flows to West Africa have slowed. The US remains the primary crude oil supplier to the European market, where geopolitical disruptions continue to impact crude oil and derivative prices. Refining margins in Northwest Europe have increased, and Naphtha-Cracks in Europe have risen due to lower stocks. Successful efforts to extinguish a blaze on a British-linked oil tanker occurred after continuous firefighting throughout the night.

According to ChemAnalyst, it is anticipated that the price of Naphtha in the global market will decline in the forthcoming weeks. Traders express that current prices are considered too high, which will lead to reluctance to buy at these levels. Energy producers and traders are evaluating the higher costs of longer voyages around the Cape of Good Hope and utilizing larger crude tankers to manage costs and risks. Buyers are demanding discounts to offset higher freight and war risk premiums. The main impact of escalating tensions in the Middle East and the threat to ships transiting the Red Sea is not on crude oil prices but on refined fuels. Naphtha is considered not at risk, and Russian ports are operating during more severe storms, easing restrictions for vessels to boost exports following disruptions from Western sanctions and harsh weather.