A significant rise in demand for the unglamorous refined product naphtha could be one of the first indications from the oil world that a recovery in fuel use – and the economy – is under way.
Demand for naphtha, which is used by the petrochemical industry to make car parts and plastic packaging, has been decimated because of its close ties to the manufacturing sector.
But trade sources have reported a surge in demand in Europe and prices have this month jumped to ten-month highs as petrochemical companies have ramped up production.
Naphtha for delivery into northwest Europe fell to more than six-year lows of $235 a tonne in December and have since nearly tripled to hit $645 on August 13, according to data from news agency Reuters.
“Naphtha is the product where you get the first indication of a slight bounce back in the economy.” said Global Insight analyst Simon Wardell.
In the United States, Energy Information Administration data showed feedstock inventories, including naphtha, had fallen for a fourth consecutive week to 158.2 million barrels, although they were still nearly ten per cent above last year’s levels.
The drop represents a fall of more than three per cent since stocks peaked in early July.
Increased industrial activity would have a knock-on effect on freight and transport, boosting demand for fuels such as diesel a so-called middle distillate.
“If there’s a revival in manufacturing we would expect a recovery in commercial transport and that would take about four to six weeks to hit middle distillates,” Mr Wardell added.
Analysts said the main factor behind the demand boost had been government car scrappage schemes in the UK, Europe and the US, aimed at reviving the ailing manufacturing sector.
To an extent the stimulus is artificial, but it could herald more genuine demand as it helps to kick-start the hard-hit manufacturing sector.
Data released last week showed that US industrial production rose by 0.5 per cent and manufacturing ouput rose one percent in July.
Automotive giant Ford Motors has revised production targets up 18 per cent compared with last year after it reported in July the first monthly sales jump since November 2007 and the world’s largest car manufacturer General Motors was expected to follow suit.
“Early in the year there was weak industrial demand and what we have seen recently is a strong turn back up although this demand is subsidy-based because of the cash-for-clunkers programme,” said Petromatrix analyst Olivier Jakob.
The world’s largest plastics producer BASF has said it had already restarted some of its small chemicals plants in Europe, although they were running at low rates.