Asia naphtha slumps back to 18-year low on crude oil crash, supply overhang

SINGAPORE (ICIS)–Asia naphtha prices have tumbled to 18-year lows, pummelled by sharp losses in global crude oil futures on the back of a coronavirus pandemic-induced destruction to demand and ample supply.

At early hours session on Wednesday, open-specification naphtha prices for first-half June delivery averaged at $171.50/tonne CFR (cost and freight) Japan, extending the previous day’s decline by $15.50/tonne.

The downward spiral in response to the crash in global crude oil futures sent naphtha prices back to 2002 lows, ICIS data shows.

ICE Brent June crude oil futures stood at $18.74/bbl at midday session in Asia as the market grappled with a supply glut amid the coronavirus pandemic.

Prices of Asia naphtha hit their lowest on 1 April 2020 at $163/tonne CFR Japan, levels not seen since 2001.

A combination of weak transport fuels demand over in Europe amid lockdowns across the globe because of the coronavirus pandemic has since chipped at naphtha demand for gasoline-blending.

Exacerbating the weak market, greater volumes of deep-sea excess supply from northwest Europe and the Mediterranean at over 2m tonnes, possibly more, could arrive in Asia next month.

Asia naphtha’s forward market structure was mired in a wide contango at $10.50/tonne as of 21 April, contrasting with the $4.00/tonne spread at the start of April, according to ICIS data.

Taiwan’s Formosa Petrochemical (FPCC) withdrew its tender to purchase naphtha for second-half May delivery because of sufficient inventory of the petrochemical feedstock.

Prices of MTBE in Asia, an additive for gasoline, have weakened in a similar vein – with prices at $184/tonne FOB (free on board) Singapore – lower than that of naphtha.

But with historical low crude oil prices, naphtha’s crack spread or its refining margin recovered to positive territory at $19.38/tonne at the close of Asia trade on 21 April. The crack spread had languished in the negative zone as deep as -$64.40/tonne on 9 April.

On the shipping front, freight rates have risen against a backdrop of limited vessel space availability, with VLCCs utilised for floating oil storage amid the supply glut situation. This has resulted in higher freight for carrying light distillates such as naphtha and gasoline.

Freight rates for moving clean products on Long Range 1 tankers from the Middle East to Japan averaged at around $98.13/tonne, higher than $62/tonne in mid-April, according to market sources.

Focus article by Melanie Wee

Additional reporting by Ai Teng Lim