Two major factors have led to a sharp drop in global naphtha demand

　　The International Energy Agency (IEA) said that the global demand for naphtha has fallen sharply for two main reasons.
First, the rise in crude oil prices has squeezed the profits of the petrochemical industry and the demand for naphtha has declined; the second is liquefied petroleum.
Gas (LPG) has a cost advantage compared to naphtha, and petrochemical producers have used LPG to replace naphtha as a feedstock for production
.

　　The latest July oil market report released by the International Energy Agency shows that global naphtha demand fell sharply in March this year, down 480,000 tons per day compared with February and 370,000 tons per day compared with March 2021
.
The International Energy Agency forecasts that global naphtha demand will drop by 220,000 tonnes per day in 2022 compared to 2021
.
The IEA said, “Naphtha has been the backbone of oil demand growth, but its use is decreasing
.
After 18 consecutive months of year-on-year growth, naphtha demand fell sharply in March
.
This change in trajectory reflects The profitability of the petrochemical industry has been squeezed and competition among raw materials has intensified
.
”

　　Naphtha cracking profit falls to record low

　　The seemingly unstoppable expansion of the global petrochemical industry fueled a multi-year increase in naphtha demand ahead of a decline in naphtha demand this year
.
In fact, naphtha, the main feedstock for the petrochemical industry in Europe and Asia, is the only major oil product that will see increased use between 2020 and 2021, with demand for naphtha increasing by 8% at the end of 2021 compared to 2019, the IEA said
.

　　"Global naphtha demand fell by 1.
1 million bpd from January to May this year, more than double the seasonal decline," the IEA said.
"The
unusual combination of high crude oil prices and weak demand has led to naphtha cracking.
Profits fell to historic lows
.
" Asian olefin producers' margins were hit by higher feedstock prices and weaker downstream demand in China in the second quarter
.
In the first quarter of this year, Asian naphtha consumption accounted for 71% of the total global naphtha consumption
.
Exports of ethylene and propylene to China fell 50% in April from a year earlier, and China's second-quarter naphtha demand fell 11% from the first, compared with the usual 4% decline in previous years, the International Energy Agency said
.
European naphtha demand also fell sharply in the second quarter.
In April, European naphtha demand decreased by 100,000 barrels per day year-on-year, a drop of 9.
3%; LPG demand fell by 40,000 barrels per day year-on-year
.

　　The IEA said that with the sharp decline in demand in Asia and Europe, naphtha cracking profits began to decline sharply, approaching LPG cracking profits
.
Since the geopolitical tensions, naphtha prices have largely risen in tandem with crude oil prices, while LPG has risen relatively slowly
.
This improves the relative cracking margin of LPG and promotes the widespread use of alternative feedstocks in flexible naphtha crackers
.
However, Russian naphtha exports have recovered in recent months, and the International Energy Agency expects that demand for naphtha will gradually and partially recover in the second half of this year and next year
.
Global naphtha demand will rise by 270,000 bpd next year to 7.
1 million bpd after an expected reduction this year
.

　　Naphtha replaced by LPG or ethane

　　Michael Connelly, chief analyst of the refining business of ICIS, a market information service provider for the global energy and chemical industry, also believes that due to cost reasons, naphtha is in many cases replaced by LPG or ethane
.

　　Strong demand for gasoline during the summer driving season continues, and European refineries continue to run at full capacity, thus continuing to produce large volumes of light naphtha by-product
.
Connery said, “Steam cracker operators are reluctant to use light naphtha as a feedstock due to higher prices compared to LPG or ethane
.
The naphtha is still being produced
.
So refiners have to find another outlet for the light naphtha, which is to be blended with gasoline, but to do that requires high-octane components to balance out the low-octane light naphtha Brain Oil"
.

　　International crude oil market "walking a tightrope"

　　The IEA said the outlook for oil markets has rarely been as uncertain as it is now
.
The deteriorating macroeconomic outlook and recession fears are weighing on sentiment, while risks remain on the supply side
.
For now, weaker-than-expected growth in oil demand in advanced economies has led to a loosening of the supply-demand balance in the global oil market
.

　　While crude prices have fallen recently, even falling below the psychological $100/bbl level, the IEA said continued tight crude supplies and high refinery margins highlighted a potential imbalance in crude and refined product supplies
.

　　The IEA also said that with spare capacity both upstream and downstream at low levels, measures on the demand side may need to be taken to reduce consumption and fuel costs
.
Without strong policy intervention in energy use, the risk of the world economy derailing from recovery remains high
.
(Pang Xiaohua)

From: China Petrochemical News