Asia naphtha crack spread tumbles to 10-week low

SINGAPORE (ICIS)–Asia’s naphtha crack spreads to ICE Brent crude oil futures have fallen to a 10-week low, weighed down by softer related product and downstream markets, traders said on Wednesday.

Naphtha’s crack spread against May Brent crude futures was assessed at $70.00/tonne at the close of business on 7 March, down sharply from the crack spread at $89.83/tonne in the preceding week. Current levels are also at lows not seen since the second-half of December 2016.

Open-spec naphtha prices were assessed at $484.50-486.50/tonne CFR (cost and freight) Japan for the early session on 8 March, down from the previous day’s close at $489.00-491.00/tonne CFR Japan. 

Spot prices were also down by some 6% compared to month-earlier levels at $521.50-523.50/tonne CFR Japan, according to ICIS data.

Overall demand was considered healthy even though other factors generated pressure on naphtha, according to market sources.

“Gasoline, LPG and benzene have come off … pulling naphtha down,” said a Singapore-based trader source.

Spot benzene prices for April were at the low $920s/tonne FOB (free on board) Korea at midday on 8 March, down from the previous day’s close, averaging at $930/tonne FOB Korea.

For upstream related oil product gasoline, the market structure was mired at a contango amid high inventories in the US.

Reflecting the softer market sentiment, Asia’s naphtha intermonth spread between second-half April and first-half May flipped from a backwardation – where prompt prices are higher than the forward month – to a contango on 7 March.

A contango structure – where prompt-month prices are lower than the forward months – typically reflects weak fundamentals.

This was mirrored in South Korean purchases that were made at discounts in comparison with earlier deals that commanded premiums.

South Korea’s YNCC bought around three medium-range size cargoes at discount at slightly above $3.00/tonne to spot CFR (cost and freight) Japan quotes.

In contrast, YNCC previously paid premiums near $6.50/tonne to spot CFR Japan quotes for first-half April delivery cargoes.

This was the first cargo destined for South Korea that fetched a discount – a deal not seen since late-December.

There appears to be more cargo supply availability out of India amid just stable demand, coinciding with the bearish market mood.

India’s Bharat Petroleum Corp Ltd (BPCL) has sold a 55,000 tonnes naphtha cargo for early-March loading from Kochi at a premium at the low $10s/tonne to spot Middle East FOB quotes.

A 17-19 February cargo it sold earlier from the same port fetched a firmer premium at the high-$10s/tonne to spot Middle East FOB quotes.