Asia’s naphtha crack spreads have climbed to their highest in nine months, with a bout of healthy buying set to keep market fundamentals buoyant.
Steady naphtha buying in Asia following attacks at Saudi oil facilities have since turned the market around, helping to lift cargo premiums.
Naphtha’s crack spread to prompt-month ICE Brent crude oil futures closed at $66.63/tonne on 2 October, up from the previous day’s $58.45/tonne.
The crack spread, a measure of the product’s refining margin, is at its highest since 2 January when levels stood at $66.90/tonne.
Asia naphtha’s market structure has widened considerably in recent days.
At early hours session on 3 October, the inter month spread between the second-half of November and the second-half of December at $18.00/tonne in backwardation.
The backwardated market structure sharply contrasted from a month earlier – when the time-spread was in contango – where prompt-month prices are lower than forward months, ICIS data showed.
A market in backwardation, where prompt-month prices are firmer than forward months, reflects strong fundamentals.
End-users in northeast Asia have scooped up spot naphtha cargoes at high premiums, which has helped to boost the market.
Taiwan’s Formosa Petrochemical (FPCC) bought first-half November delivery naphtha cargoes at a premium in the low-teens to its pricing formula, significantly higher and in contrast with discount levels FPCC paid in its prior purchase.
Export cargoes sold out of India have also fetched strong premium levels, mirroring the firmer market sentiment.
India’s Bharat Petroleum Corp Ltd (BPCL) sold naphtha at a premium of around $21/tonne to its pricing formula on a FOB (free on board basis) for early-October loading.
The premium level was sharply higher than BPCL’s earlier sale of a September shipment that fetched a single-digit premium.
While concerns about disruptions to Asia petrochemical supply have eased with Saudi Arabia restoring feedstock supply, moves earlier to plug any shortfalls have since driven up sentiment.
The trading arm of Saudi Aramco, Aramco Trading had previously chartered a vessel to move naphtha to Japan, loading from Europe in late-September.
In a similar move, Aramco had bought naphtha from India’s Hindustan Petroleum Corp Limited (HPCL) at high double-digit premium levels for first-half October loading.
At early hours session on Thursday, open-specification naphtha prices averaged at $498.50/tonne CFR (cost and freight) Japan basis for second-half November delivery, sliding down by $11.00/tonne from the previous day’s Asia close.
But outright naphtha prices are still higher compared to $473.75/tonne on 13 September, just before the Saudi attacks. - Source: ICIS-