The global Naphtha market experienced a price decline recently. In the week ending May 17, 2024, Naphtha prices in the US market fell by nearly 3%, dropping from USD 590/MT to USD 573/MT. The oil price selloff had seemingly reached a bottom over the past week, leading to a decrease in Naphtha prices. Demand concerns, coupled with a reduction in the geopolitical risk premium, were blamed for the pullback. Meanwhile, the oil futures markets turned decidedly bearish, with ventures shifting significantly towards the short side in oil. Although demand concerns emerged as the main headwind for oil prices, the major energy agencies only made minor revisions to their demand and supply estimates in recent weeks.

The Energy Information Administration (EIA) reported lower growth in U.S. crude oil supply caused Naphtha price decline. In the US market, the price decline was linked to a decrease in demand and a subsequent price drop in the downstream market of Naphtha, contributing to the overall downward trend in Naphtha prices. Reduced borrowing costs due to lower interest rates freed up money that could increase demand for oil and spur economic growth. Weaker refinery demand and abundant supply were weakening the physical crude oil markets globally, which might have led to additional deterioration for benchmark crude futures. Naphtha monthly prices in the Brazilian market also declined. This proactive stance ensured a steady flow of essential resources and contributed to the downward pressure on Naphtha prices. Moreover, a decrease in domestic demand further supported the downward trajectory of Naphtha prices in Brazil. Simultaneously, a reduction in geopolitical risks in the Middle East played a pivotal role in driving down Naphtha prices in the Brazilian market. As tensions eased in the region, the associated uncertainties that typically inflated prices subsided, contributing to a more favourable pricing environment.

In Asia, oil prices fell during trading, leading to a decline in Naphtha prices. Investors anticipated that sustained high U.S. inflation and interest rates would depress consumer and industrial demand for Naphtha. Fears of weaker demand triggered selling as the likelihood of a Fed rate cut became more distant. Global physical crude oil markets weakened due to soft refinery demand and ample supply, potentially leading to further weakness for benchmark crude futures. Investors focused on the supply from the Organization of the Petroleum Exporting Countries and its affiliates, known as OPEC+, who are scheduled to meet on June 1 to set output policy, including whether to extend some members’ voluntary cuts of 2.2 million barrels per day. OPEC+ might extend these voluntary output cuts if demand does not improve. The decline in crude oil prices led to a drop in Naphtha prices, as demand remained weak in the Asian market. In the Asian market, additional losses were influenced by several key factors: the extended shutdown at Vietnam's Long Son cracker until June, repair works at Malaysia's Prefchem cracker from late March for a month, a fresh shutdown plan at Japan's Keiyo Ethylene cracker from April 10 for half a month, and a delayed restart at Tosoh Yokkaichi's cracker from mid-April to the end of April. Additionally, Japan adjusted its crude oil import strategy by decreasing imports of Saudi Arabian crude while increasing shipments of U.S. cargoes.

According to ChemAnalyst, predictions indicate that Naphtha prices may rise due to potential spikes in upstream oil prices. This could occur following the confirmation of the deaths of Iranian President Ebrahim Raisi, Foreign Minister Hossein Amir-Abdollahian, and other officials in a helicopter crash in the country's northwestern province. Robust economic data from China, signalling high oil demand, is expected to support price increases. As the world's second-largest oil consumer and largest importer, China has announced plans to start issuing subsidized bonds. Recent economic indicators from the United States have fuelled optimism over global oil demand, which will likely affect Naphtha prices. In the U.S., expectations of lower interest rates are growing. Reduced interest rates might undermine the strength of the U.S. dollar, potentially lowering the cost of oil for investors who hold different currencies, thereby stimulating demand.