The economics of moving naphtha from Europe to destinations east of Suez are likely to become unworkable soon as refineries in the Mideast Gulf offer more supplies on their returns from maintenance and naphtha demand in Europe remains strong.
The March east-west spread, or Asian naphtha's premium to European prices, has narrowed significantly in recent days to a four-month low of $11/t on 1 March.
European demand has been strong in recent weeks, both for gasoline blending and for petrochemical production. The former will increase closer to the northern hemisphere summer, a Dubai-based trader said. Russia's six-month gasoline export ban may boost blending activity in northwest Europe to service firm gasoline demand from west Africa.
UAE's state-owned refiner Adnoc was to complete a planned turnaround of a residual catalytic cracker at its 417,000 b/d Ruwais 2 refinery by early March, which could lead to more supplies coming into the market. A market participant said Adnoc has already sold an unspecified amount of naphtha for delivery in the first-half of April to Japanese refiner Eneos, probably from Ruwais 2.
Saudi Arabia's state-controlled Aramco was on course to complete maintenance at its 550,000 b/d Ras Tanura refinery at the end of February, and Qatar's state-owned QE could have concluded a shutdown of a 146,000 b/d condensate splitter at the Ras Laffan complex, although this could not be confirmed.
The economics of moving naphtha east to west has been complicated by the disruptions to shipping through the Red Sea. Tankers taking the longer route around the Cape of Good Hope to avoid the dangers posed by Houthi militants led to a prompt supply shortfall in February. This pushed up naphtha premiums and encouraged Indian refiners like Nayara Energy and BPCL to resume spot offers for the first time in months, raising the prospect of a supply surplus in the region when the delayed cargoes arrive from Europe this month.
The regional naphtha spot premiums have come off from the recent highs of near $50/t, but remain supported at above $30/t by firm buying interest in Indian and Middle Eastern cargoes. But demand has been slowing as petrochemical cracker operators in Asia-Pacific have started to replace naphtha with LPG. This tends to happen in the region when LPG's price falls to a more than $50/t discount to naphtha. The propane-naphtha spread — or the premium of the Argus propane far east index swap to the Argus cfr Japan naphtha price — fell to a 22-month low of -$128/t on 29 January.
A heavier spell of upcoming planned cracker maintenance in South Korea and Japan could weigh on requirements in short-term, traders said.
Russia became a major naphtha supplier into Asia-Pacific in 2023, after the product was shut out of the EU. But Russia's exports have been falling following several incidents at refineries this year, and only 673,000t of Russian naphtha arrived in Asia-Pacific in February, compared with 1.05mnt in January, according to oil analytics firm Vortexa data.
