Onyx Research Analyst Finlay Gordon’s trade idea this week is; Jun NWE Naphtha Crack.
The June European naphtha crack has already fallen $2/bbl since the start of the month, as the strength from the potential Bull play in May subsided. In turn, price action fell from highs of -$9.50/bbl to print at -$11.50/bbl on open of May 14.
Despite this downward move, positioning for the prompt crack still feels heavy. Funds and banks who were previously buyers of the contract have turned to be the strongest sellers since last week. With flows pointing to the sell side, there is potentially more crack length yet to be sold after the accumulation last month.
Moreover, European CDU refinery margins, the simplest type of refinery which produces straight run products, such as naphtha, remain improved around the $5/bbl mark. Coupling this with the conclusion of refinery maintenance casts a bearish spell for NWE naphtha cracks.
In the past week, we have seen significant net sell side flows across all counterparties, with trade houses net offering 1.25mbbls. In line with this, the Jun 7-day market split is skewed to the sell side at 25:75 on a long:short basis. Notably, the 8-day moving average has recently subducted its 21-day counterpart, portraying another clear bearish signal.
Overall, we believe there are far too many bearish lumberjacks swinging their axes, with players potentially continuing to chop off length, pressuring the Jun European naphtha crack lower.