Atlantic Basin looks to hold naphtha, giving support to MOPJ premiums

Despite a volatile week, MOPJ spreads have remained generally unchanged, while MOPJ crack values have fallen over the past week as prompt naphtha E/W spreads declined and implying a weaker East of Suez market.

(Rotterdam OSN arbs close into Chiba)

The decline in E/W spreads with a subsequent decline in Asian sales prices has closed the Rotterdam to Chiba arbitrage for NWE exporters into mid-October delivery windows, crunching marginal supply into the broader Asian market.

Mediterranean arbitrage opportunities from Cartagena, Eleusis and Algeciras exporters for September and October deliveries for OSN, HFRN and Light quality cargoes have remained marginally open despite this decline for the remaining delivery windows into Chiba. AG opportunities continue to remain open should cargoes be available, despite depressed petchem margins within the broader market suppressing demand.

Despite the marginal workability for arbitrage opportunities for Mediterranean cargoes for August and September loaders, the preference within the broader market appears to favour a strengthening West of Suez market. Export opportunities into Brazil have continued to provide increasingly attractive margins.

(Brazilian opportunities look increasingly attractive)

Weakening FOB premiums and improving demand in Brazil have led to Skikda splitter naphtha seeing margins improve from +$12/mt at the end of the prior week to +$20.50/mt for August loading windows into the region.

(Brazil and NYH compete in the Atlantic basin)

Rotterdam exporters have reaped the benefits of the underlying bump in naphtha demand from A-grade waivers in gasoline and increased sub-octane component demand. This has led to burgeoning competition between NYH and Brazilian importers for scarce supply in the Atlantic Basin, with both likely to face additional competition soon from an increasing number of ARA blenders for C5 naphtha.

Within the Atlantic Basin, Brazil appears to be the stronger market as the sales price has risen in the region compared to C5 and heavy naphtha diffs in NYH over the past week. Brazil is likely to remain the stronger market of the two in forward months as Houston non-Jones Act vessels become workable for winter-grade gasoline from mid-September delivery windows onwards.

(August loading arbs to Yeosu and Chiba close)

An additional weight on the NYH naphtha market is the stronger margin for naphtha delivery in the region rather than finished grade, with the confluence of weaker demand in the Far East closing arbitrage opportunities abroad, further allowing Brazil to take an increasing share of global supply.

(E/W Nap spread and forwards)

The closure of much of the West of Suez market, with more attractive outlets in Brazil and New York respectively, does allow for some underlying support to begin mounting within MOPJ markets. The risk to physical supply within the AG and Red Sea transits adds material risks for MOPJ spreads to reassert premiums in a low-inventory environment despite poor petchem demand, reversing last week’s outlooks for arb.

About the Author

Nikolas Plonski, our Oil Market Analyst for the Americas at Sparta, brings experience as a trader from Gent Commodity USA trading diesel and jet paper markets. Nikolas then joined Sparta, where he serves as a cross barrel analyst focused on the Americas.
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About Sparta

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