Adam: Hello and welcome to another edition of "The Crude Report: the APAC Series." I'm Adam McCarthy, VP of Crude Oil for Asia Pacific and the Middle East here at Argus. Today, we're turning our attention to two segments that have seen some dramatic shifts recently, condensate and naphtha. Joining me are Reena Nathan, our Deputy Editor for Crude, and Cara Wong, Associate Editor for Oil Products. Reena, Cara, welcome.
Reena: Hi, Adam. It's great to be here.
Cara: Thanks, Adam. Looking forward to the discussions.
Adam: Okay, let's start with condensate. Reena, South Korea seems to be leading the charge in condensate buying. What's behind this surge?
Reena: Yes, so South Korea has been unusually aggressive in the condensate market since August. Even Malaysian grades like Muda and Chakrawala, which usually go to Thailand, was snapped up by South Korean firms last month. The main driver is concern over potential naphtha shortages in Asia Pacific. With Russian exports disrupted, especially after the drone strike on Novatek's Ust-Luga terminal and Middle East refinery turnarounds looming, South Korean buyers are trying to secure naphtha-rich feedstock early. So they've been buying up condensate grades like Australian Ichthys and even ultra-light crudes like Australian Cossack. These ultra-light crude grades also yield high volumes of naphtha in addition to middle distillates, which are all in demand ahead of the year-end travel season. So this aggressive buying has in turn squeezed out other regular buyers like Indonesia's TPPI splitter, which may now need to look for alternatives.
Adam: I see. And how is that affecting pricing?
Reena: Spot premiums have surged. So Cossack traded at its firmest differential to date since like early 2022 at close to $3 per barrel. We're hearing Ichthys condensate may have been recently sold above $4 per barrel, and that's possibly the highest since early 2022 as well. The premium of Papua New Guinea's Kutubu Light has risen above $2 per barrel, with some people saying it was close to $3 per barrel for November loading cargoes. That's also roughly the firmest since early 2022. Qatar Energy has also been able to sell November loading low sulfur condensate at premiums of $1 to $2 to Dubai, which is the highest since around the end of last year.
Adam: I see. I understand it's also a tight market for condensate this month. Are we seeing any signs of relief?
Reena: There's some hope that turnarounds in Thailand, particularly at PTT GC, might free up some cargoes, but overall, availability remains tight with fewer regional condensate cargoes like Northwest Shelf, Ichthys, and Australian Wheatstone condensate being offered this cycle. We've also seen supplies from Qatar Energy drop this month, and with seasonal year-end demand picking up, we expect premiums to stay firm.
Adam: Great. Thanks, Reena. Cara, let's turn to naphtha. What's the situation there?
Cara: Yeah, so Adam, it's actually been a very volatile few weeks. Asian naphtha prices have really surged due to all the supply disruptions. As Reena and you have mentioned, the drone strike on Russia's Ust-Luga terminal in late August really forced Novatek to shut its condensate splitters, and that's really cut quite a lot of exports to Asia. And this is a really big blow considering Russia is the second biggest supplier to Asia Pacific, exporting around 800kT to 1 million tons per month of naphtha to this region. At the same time, it's coming at a very bad time because Middle East supply is actually tightening. Kuwait and Saudi Arabia are planning major refinery maintenance in Q4, which will reduce the naphtha output coming over into Asia. Also Kuwait's Mina Abdullah refinery is supposed to go offline for 30 days starting from October, and Saudi Satorp is going to shut for another 60 days in November and December. So all in all, it does look like supplies will be quite tight.
Adam: Right, I see. So how's the market reacted to that?
Cara: So I think the biggest reaction is really we saw Japan's naphtha crack spread against ICE Brent, really surging to hit like $100 per ton in mid-September. So this is like a multi-month high. It's come off there after since, but we are also seeing spot premiums inching up slowly. So you know, cargoes used to trade around a low singles premium to the benchmark prices, maybe for around the October delivery market. But for the November delivery market, we know we are seeing premiums going up to high singles to the benchmark prices.
Adam: I see. And how about demand? Is that holding up despite the high prices?
Cara: I think for demand side, sentiment is a little bit more mixed. Petrochemical demand is easing a bit because there's quite a lot of cracker turnaround works in South Korea, for example. And there's also a bunch of outfitters within Asia. But we have still seen, you know, buyers continuing to buy their usual spot supplies. And we're seeing more demand now in the non-Russian market space. So for example, actually a Taiwanese buyer who usually used to buy a lot of Russian naphtha has also turned to non-Russian cargoes, which means, you know, they pay higher premiums. So this producer, for example, recently just paid a mid to high single digit premium for a naphtha cargo to be delivered in Taiwan. So this is quite a short contrast from its usual discounts that it pays for Russian origin barrels.
Adam: Yeah, that's a big shift. Are we seeing any changes in trade flows?
Cara: Changes in trade flows actually not so much because we're still seeing the same trade flows. But we should note that buyers who still take Russian naphtha, so like the buyers in China or India, you know, they're seeing a little bit fewer spot offers. Novatek hasn't been offering much since the August attacks. And, you know, buyers who avoid Russian barrels are facing slightly higher premiums and I would say slightly tighter supply as a result of that.
Adam: Okay, interesting. And what's the outlook for the next few months?
Cara: I think generally, everyone agrees that it's going to be a bit tight in terms of supplies. So, you know, with Russian exports expected to come down quite a fair bit and the Middle East turnarounds ahead, the supply picture is definitely looking tighter. Although a lot of this, I would say, will hinge on the extent and the damage of the Russian refining capacity. Because as it is, I think we're also hearing different opinions and different stories from the ground on whether or not Russia can come back online, oon whether or not Novatek's Ust-Luga splitter will be able to serve up faster than expected.
Reena: From the condensate side, we expect South Korea to remain active. Their recent purchases have already pushed premiums to, you know, multi-month, multi-year highs. And unless Russian supply recovers quickly, this pressure will stay on.
Adam: Okay, thanks. So what would you say are the broader takeaways for our listeners?
Reena: From the condensate perspective, it's clear that geopolitical risks and supply disruptions are reshaping trade flows. South Korea's preemptive buying spree is a sign of how fragile that balance is. Even small disruptions can ripple across the region.
Cara: And for naphtha, I think it's the perception of risk that's driving prices up. So the market has really priced in quite a lot of uncertainty in supplies. And with fewer spot physical barrels available, I think we are seeing buyers being forced to act early and pay a little bit more.
Adam: I see. Okay. Well, thanks, Cara. And thanks to you, Reena, as well. I think that's been a great overview of, you know, a very fast moving market. We'll certainly be watching how these dynamics evolve, especially as we head into Q4. And I think that's about all we have time for on this episode of "The Crude Report: The APAC Series." So thanks again to Reena Nathan and Cara Wong, and thank you for listening. We'll be back soon with more insights on the forces shaping oil markets across the region.
