Coronavirus effects could lead to naphtha overhang

A coronavirus outbreak in China could cause US Gulf Coast refiners to boost naphtha output as they throttle back on jet fuel because of lower aviation demand.

The recent outbreak of a coronavirus in China has led to flight bans from the city of Wuhan, where the virus originated. This could cut jet fuel demand in Asia and across the globe, similar to the jet demand drop that took place during the SARS outbreak in 2003, traders say.

As a result, US Gulf coast refiners could raise naphtha yields at the expense of jet fuel, causing a supply overhang in the Gulf coast, where high freight rates for long-haul routes are already limiting exports.

US bank Goldman Sachs said that the outbreak could cut global oil demand by 260,000 b/d.

Gulf coast Colonial pipeline jet fuel rose slightly against Nymex futures today, though not enough to offset the drop in Nymex ULSD futures.

Although direct sales of US naphtha to China have been stymied by increased tariffs, US naphtha can often find its way to China's petrochemical sector via Japan or Korea.

The Nord Larkspur was scheduled to carry approximately 534,000 bl of naphtha from the US Gulf coast to Japan, loading tomorrow. The charterer had been looking for a vessel for a few weeks, but high freight rates out of the Gulf coast — because of weather-related concerns and more expensive bunker fuel — have tightened vessel availability.

By Chunzi Xu and Daphne Tan