Supply-Demand Equilibrium Stabilizes US Naphtha Prices in November 2023

In the United States, the Naphtha market showcased remarkable stability throughout the third week of November, underscoring a delicate balance between demand and supply dynamics within the industry. This equilibrium was pivotal in preventing substantial price fluctuations and instilling confidence among market participants. Despite a marginal 1% decrease in the price of feedstock crude oil during this period, the market faced challenges linked to shipping restrictions via the Panama Canal. Drought conditions increased transportation costs for US Naphtha to Asia, resulting in a notable disparity between Asian and European Naphtha prices. However, during the second week of November 2023, the Naphtha market in the United States experienced a notable 8.5% price decrease, primarily attributed to a substantial 6% global decline in Crude Oil prices, a crucial feedstock of Naphtha. The impact of this sharp fall in Crude Oil prices resonated within the country, influencing product pricing. The United States observed an additional 1.335 million barrels added to Crude Oil inventories for the week ending November 10, as the American Petroleum Institute (API) reported. This follows a significant 11.9-million-barrel increase the preceding week, surpassing analyst expectations of a 1.4-million-barrel build. API data indicates a net build of 11.9 million barrels in US crude oil inventories for the year. In parallel, the Department of Energy (DoE) reported a consistent status of crude oil inventories in the Strategic Petroleum Reserve (SPR) for the sixth consecutive week, holding steady at a nearly 40-year low of 351.3 million barrels. Notably, the total purchases for the SPR under the Biden Administration's buyback program remain below 4 million barrels.

Meanwhile, in the Chinese market during the third week of November 2023, the price of Naphtha experienced a 1% increase. The growing strength influenced this Naphtha price uptick in other energy products, particularly crude oil. The OPEC monthly report contributed to this trend by indicating that fundamentals in the oil market remained robust. The report highlighted China's sustained healthy crude oil imports and the ongoing strength of Asian refining margins.

Despite these positive indicators, the Naphtha market is anticipated to confront prolonged challenges in the upcoming week. This outlook is shaped by the likelihood that the Organization of the Petroleum Exporting Countries and allies (OPEC+) will extend or potentially deepen oil supply cuts into the next year and continue to impact Naphtha prices. The decision follows a drop in Brent prices from their peak in September. OPEC+ is set to deliberate on additional cuts in response to the sharp selloff in oil prices, despite a supply deficit attributed to OPEC+ cuts in the fourth quarter. Concerns about burgeoning non-OPEC supply and softening demand in major economies add complexity to the market dynamics.

The overall landscape suggests a delicate balancing act for the Naphtha market, influenced by global factors such as shipping restrictions, geopolitical tensions, and decisions by major oil-producing entities.