Skyrocketing freight compresses most naphtha arbs; softer Med premia, resilient Asian pricing keep Eastbound arbs open; West of Suez arbs challenged by weak gasoline, surfeit of supply

6 June 2024 Time to read:  minutes



The recent breakdown in the crude complex, coupled with skyrocketing clean freight rates—as players returned to their desks post-Memorial Day weekend and began a flurry of fixtures—has compressed naphtha arbs across the board.

That said, given the even more dismal fundamentals surrounding the diesel and gasoline complexes, naphtha cracks appear to be among the most resilient.


Despite recent flat price weakness, naphtha cracks—in particular MOPJ and NWE—are outperforming those in the more beleaguered gasoline and diesel complexes. (Sparta Live Curves)

Further, Asian naphtha cracks should continue to lead the pack with decent buying still seen from regional petrochemical players as downstream polymers prices pick up for the summer manufacturing season.

Our Sparta platform has compounded these views, showing sales prices for heavy and light material into Yeosu and Chiba remaining fairly elevated as well through Q3.

Finally, our forward Asian steam cracker margins show naphtha-fed units well above breakeven levels, which should continue to incentivise strong operating rates.

Lastly, we understand Tuapse barrels are likely to be crimped for the next few weeks, which should continue to keep August deliveries well bid.


TC 14 (USGC-ARA) and TC18 (USGC-Caribs) freight rates have risen sharply with the bulk of the clean products freight routes as players piled back to their desks after the US Memorial Day holiday to cleaned out the available fixture list through end-June. This has shut down a substantial number of clean product routes and could precipitate further flat price weakness. (Sparta Live Curves)

Eastbound arbs that remain profitable have largely done so because FOB premia have done the heavy lifting thus far to ensure these flows remain profitable.

This is likely to remain the case over the summer given the resumption of supply from Med refineries now almost fully exited from maintenance.


Med premia have priced themselves accordingly to overcome rising freight to keep the Eastbound arbs workable. Further support has come from decent buying appetite from Asian market participants given profitable steam cracker margins. (Sparta Live Curves)

Med supply will be further incentivised to find homes in the Far East given the ongoing fundamental softness in ARA, which continues to shut out inbound cargoes to Europe.

We maintain a bearish outlook on ARA naphtha’s key demand driver, gasoline, over the summer as record-high PADD 3 refinery runs and disappointing US Memorial Day demand stats pile on to RBOB’s ongoing malaise, ultimately curbing appetite for naphtha blending on either side of the Atlantic.


In contrast to Asia, the NWE naphtha complex has been beset by softness from both gasoline and petrochemical demand, shutting out most inbound ARA cargoes. (Sparta Global ARBS – ARBs Comparison)

Meanwhile, we continue to note the volatility around Asian summer propane-naphtha swaps, which remain stubbornly stronger than historical averages and continue to point towards easing use of LPG in regional steam crackers.

However, our all-in calculations of regional forward steam cracker and PDH cash cost margins (see below) show propane-fed crackers with a slight edge over naphtha units in the coming months, meaning naphtha is unlikely to substantially muscle out LPG in the steam cracker feedslate pool any time soon.

But again, we maintain our view that propane’s stellar performance in the markets—now getting incremental support from pricey LNG, resulting in increased LPG spiking into gas for power generation as parts of Asia swelter in the early summer heat—will wane, especially given underwater regional PDH margins.

As such, our view of capped margins for Eastbound naphtha cargoes from the Med, as well as a ceiling for the E/W spread, holds.



Sparta steam cracker and PDH forward margins. Asian propane-naphtha swaps remain unseasonably tight, which would suggest naphtha might get some incremental demand from the regional steam cracker pool. Our all-in forward cash cost margins show otherwise, meaning propane will remain the feedstock of choice for steam crackers, capping margin upside for East of Suez naphtha arbs. (Sparta Historical Forwards)

 In the US, despite prompt C5 values falling to levels last seen in February, there is room for further declines in the near term. Aside from strong competition from cheap WAF barrels, the devastating floods in Brazil look set to keep petrochemical demand subdued through at least the end of the month.

The Triunfo petrochemical complex, although technically restarted, is running around 50% of capacity and with downstream automotive plants also running low, if they aren’t shuttered altogether.

As such, even contracted naphtha imports from the US—which are coming in steadily lower w/w since early May—look challenged, meaning further downward pressure in prompt and near-prompt US C5, especially considering recent lacklustre gasoline demand data at the start of the US summer driving season.


Source: Global arbs dashboard. Already closed USGC-Brazil arbs will be further challenged by softer Brazilian demand due to the recent floods that have shuttered petrochemical and industrial output, on top of cheaper WAF material. (Sparta Global ARBS – Dashboard)

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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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