* Interest in term deals contrasts with weak demand outlook
* Russian naphtha now in oversupply after summer shortages
By Jessica Donati
LONDON, Nov 29 (Reuters) – A stream of Russian naphtha from the port of Svetly has been awarded to Royal Dutch Shell , potentially directing a steady supply of the refined fuel to Europe throughout 2012, traders said on Tuesday.
The term contract was for up to three shipments a month of around 12,500 tonnes of Russian naphtha from the port of Svetly. Traders said the cargoes would end up in Europe because smaller vessels limit the opportunity for arbitrage play.
“The Svetly deal should mean the window (for trade in northwest Europe) stays well supplied,” said a naphtha trader.
Shell was not immediately available for comment.
Continued appetite for term contracts for the supply of naphtha, an indicator of industrial demand, is in contrast with a glum outlook demand ahead, as traders contemplate the prospect of another recession in major European economies.
Trading house Trafigura will also be in a position to direct streams of Russian naphtha to Europe, having recently won new term contracts with Russia’s TNK BP for 2012, following similar deals with the Russian refiner this year.
Traders said three streams of the refined product to the terminal of Murmansk had been secured by Trafigura, amounting up to 115,000 tonnes per month.
Naphtha prices are languishing this winter as moderate temperatures help keep rival feedstock propane at a deep discount, and refining margins for gasoline have fallen into negative territory.
“You can drive youself nuts trying to work out why,” said one naphtha broker, commenting on various freshly signed supply contracts for in 2012.
Russian demand for naphtha has tapered off in line with the end of the driving season which has increased the volume of naphtha available, also helping to depress prices in Europe.
“Demand is weak every year around this time while there is lot of naphtha at the base (reservoirs), that’s why the prices are down,” an industry source in Rostov-on-Don, in Southern Russia, told Reuters.
As demand from Brazil has dried up, traders in Europe are looking to Asia for opportunity.
Asia’s naphtha price was near a 1-1/2 week high on Monday while physical timespreads hit five weeks high as on sellers’ hopes of slightly stronger demand ahead.
But others have cautioned slow Chinese plastics demand was unlikely to induce crackers in Japan and Taiwan to run at higher capacity.
This week trading house Glencore was said to be hoping to find a buyer in the east for a naphtha cargo recently awarded via a tender from Morocco’s Mohammedia refinery.
“Crack maintenance and poor margins, so Brazil is buying less,” another naphtha broker said.
