Naphtha arbitrage flows between US Gulf Coast and Asia for November recover after storms
Some market players had resumed their charter activities for US Gulf Coast naphtha exports to Asia, leading to a resumption of arbitrage flows for November arrivals following a disruption trade related to the storm, sources said on September 22.
Bad weather on the US Gulf Coast during the second half of August and the first half of September cut Asia off from its main supplier of naphtha, tightening supplies to Asia for the delivery cycle of ‘October.
With refinery restoration efforts underway and the resumption of port operations, approximately 193,000 tonnes of naphtha has been set aside for Asia from the US Gulf of Mexico coast for loading September 16-22, compared to just 136,000 tons of shipments loaded in the first half of September, data from the shipping sources showed.
As of September 21, total US Gulf Coast naphtha exports to Asia in September stood at 367,000 t, of which 38,000 t had an option to be unloaded in Europe, sources said.
While the September charter was not complete, the naphtha load for the month is expected to be less than August’s 800,000t, according to data from market sources and S&P Global Platts cFlow.
Light naphtha supply tightens
The supply of light naphtha was expected to remain limited as U.S. oil producers continued to strive to recover production hit by Hurricane Ida in late August. Shell said damage to its facilities on the U.S. Gulf of Mexico coast will push it back to full capacity in the first quarter of 2022.
The pace of the recovery implies limited arbitrage volumes for the current November delivery business cycle in North Asia, sources said.
The qualities of light naphtha from the US Gulf of Mexico coast are sought after by steam crackers in Asia because of their high paraffin content which helps to maximize olefin production at a time when margins are positive. Positive olefin margins kept Asian steam crackers running at full or near full capacity in September as these end users maximized the use of naphtha as a cracking feedstock, while rival feedstock LPG was economically unsustainable as an alternative.
The storm-stricken US Gulf Coast had constricted the naphtha complex in Europe, which also provides naphtha arbitrage volumes to Asia, pushing prices to a nearly six-week high.
The physical crack of CFR Japan naphtha widened against the previous month’s ICE Brent crude futures contracts widened from $ 8.25 / mt per week to $ 135.975 / mt at the Asian close on September 21 , according to data from Platts. Physical crack was last up at $ 138.77 / mt on August 11.
“[Firmer naphtha] is due to the decline in arbitrage, mainly from the US Gulf of Mexico coast due to the typhoon, so light naphtha arbitrage volumes suffered, ”said a Singapore-based naphtha trader .
“Since the light naphtha arbitrage went down in October, I think the light naphtha spot premiums will get higher, especially for a minimum paraffin content of 80%, unless the Gulf Coast arbitrage of the United States does not recover, ”said the trader.
About 320,909 bpd, or 16.64%, of the US Gulf Coast’s oil production went offline, while about 566.67 million cubic feet per day, or 25.42%, gas production has been shut down, the US Bureau of Environmental Safety and Enforcement said on September 21.