Asian naphtha time spreads correct after Tuapse, Daesan resume operations, making Med-Asia arbs uneconomic; further ARA weakness to widen E/W, while defiant US prices spurn inbound NYH cargoes

24 May 2024 Time to read:  minutes



Global naphtha cracks continue to rebound—more a function of crude price action rather than naphtha—although Asian time spreads are seeing a downward correction after news of supply disruptions at Tuapse and Daesan were put to rest early this week.

Fires at Hyundai Oilbank’s Daesan and Rosneft’s Tuapse refineries last Friday (17 May) ignited supply fears in Asia as the former reduced runs, while extent of the damage to the latter was unknown at the time. Daesan is said to be increasing operating rates, while Tuapse has resumed operations.


Asian naphtha time spreads correcting after last Friday’s sharp move upward on news of potential supply disruptions from Daesan and Tuapse. (Sparta Live Curves)

More critically, the E/W spreads for June and July have retreated and are now at levels last seen in late April, which puts the onus more on the supply side to keep arbs open heading into summer.

As a result of these recent price corrections, Med-Asia arbs, especially to Yeosu for July deliveries, swiftly became uneconomic after briefly opening last Friday.

Indeed, we cautioned then that these windows were likely to be short-lived should operations stabilise and resume promptly from the two affected assets.

As such, unless Med premia fall further, will likely become even more uneconomic in short order.



E/W sharply retreating, making incremental Med-Asia cargoes uneconomic and placing the onus on the supply side to reopen the arb. (Sparta Global ARBS – ARBs Comparison)

Asian propane-naphtha swaps for summer remain unseasonably tight—with June swaps rising to levels last seen in January—and are right at the levels necessary to switch flexible steam crackers over to consuming more naphtha.

However, our forward cracker margin models continue to show Asian propane margins more profitable than naphtha with butane-fed crackers outclassing both by $75-120/t through August.

That said, the margin differential in July and August is no more than $40/t, which could encourage some cracker operators to consume marginally more naphtha, depending on their downstream co-product needs.

However, we maintain Asian propane will ultimately correct, bringing pro-naps back to more historical norms, shortly as our PDH margin models show Asian PDH units continuing to run below breakeven levels.

This should lead to capped PDH run rates, allowing propane to remain the more favoured feedstock in the near term.

Ultimately, we maintain our neutral to bearish view on the Asian naphtha complex, especially as steam cracker maintenance season winds down in the region in June, returning the downstream petrochemical markets to a state of oversupply.


Med cargoes now losing lustre in the Far East will face stiff competition into ARA from WAF material. (Sparta Global ARBS – ARBs Comparison)

Those same Med cargoes now losing ground eastward and might look to turn west towards Rotterdam will run into competitively priced Nigerian material. But Europe in of itself is not without its challenges.

As we noted in our gasoline commentary on Thursday, we expect further declines in NWE naphtha pricing given retreating petrochemical demand amid anaemic regional consumer demand and a faltering ARA gasoline complex.

The US pricing situation continues to worsen in the sense that USGC values remain stubbornly strong, defying ever weakening PADD 1 fundamentals. These have combined to put even USGC material into New York Harbor out of the money at the prompt as of this this week.

NYH naphtha pricing is entirely governed by the similar out-of-the-money gasoline arbs, mirroring ample PADD 1 gasoline inventories.

Absent substantial upside to NYH gasoline prices, even as the overall RBOB complex appears to shrug off the start to the US summer driving season on Memorial Day next Monday, NYH naphtha arbs should remain shut over the coming months.


New York Harbor naphtha markets continue to spurn inbound cargoes amid ever-rising PADD 1 gasoline inventories, faltering RBOB. (Sparta Global ARBS – ARBs Comparison)

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 Samantha Hartke, a veteran in commodity management, boasts substantial expertise in energy analysis and product management. In her role at Energy Aspects as Head of NGLs, she analysed global natural gas liquids markets. Previously, at PetroChem Wire, Samantha provided high-quality analysis of North American NGLs and olefins. Her expertise also extends to leading the commercial and operational aspects of IHS Chemical’s daily business information service.

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