Trade Idea: Long Mar/Apr Naphtha E/W

Onyx Research Analyst Finlay Gordon’s trade idea this week is to long the Mar/Apr Naphtha E/W

Naphtha E/W structure has been battered in the prompt recently, with the Balmo contract falling to single digit territory at the end of last week. Issues at Shell’s Rhineland refinery halted naphtha sales and declared force majeure, causing prompt European cracks to break out of their usual range of between -$9/bbl and -$7/bbl to trade in the -$5/bbl handles.

The long-positioned E/W market has been resilient, rolling their length into later tenors in line with the European Mar/Apr naphtha spread bid to highs of above $20/mt. As a consequence, whilst the more deferred boxes remain in positive territory, the Mar/Apr E/W box has been toasted, falling from flat to -$9/mt over the past fortnight.

Nonetheless, the weakness in March looks to be priced in, which could leave April in a vulnerable position. We have already seen early longs happy to take profit when the front European spread approached the $20/mt mark, and it remains to be seen how much higher the spread can price. In addition, Europe will look to maintain strong pricing in order to pull cracker feed naphtha.

This idea is reinforced when looking at the technicals for the prompt E/W box, with both the RSI and Bollinger bands displaying oversold territory, suggesting the contract is primed for a reversal.
In turn, our trade idea for this week is to long the Mar/Apr Naphtha E/W box, with the expectation that weakness may flow into the April segment and push the box back towards flat.