Japan M1/M2 naphtha timespread soars to record high on tight supply

The front-month Japan naphtha swaps backwardation rose 13.64% on the day Feb. 25 to a record high, bolstered by tight Western arbitrage supply and rising crude futures.

The March-April Mean of Platts Japan naphtha swap time spread widened $2.25/mt on the day to $22.75/mt at the Asian close Feb. 25, S&P Global Platts data showed. The swap spread stood at a record high, according to historical data dating back to Oct. 1, 2014.

The strength in the naphtha complex was also reflected in the CFR Japan naphtha physical crack spread against front month ICE Brent crude futures, which widened $11.65/mt week on week to $148.825/mt at the Feb. 25 Asian close, Platts data showed.

Similarly, the benchmark C+F Japan naphtha cargo assessment spiked $81.625/mt on the week to $910.75/mt at the Asian close Feb. 25, Platts data showed, led by a jump in crude oil futures. The assessment had hit a more than seven-year high on Feb. 24 at $921.75/mt, Platts data showed.

Crude oil futures have been volatile in recent sessions amid concerns that an extended military conflict in Ukraine could impact oil supplies, Platts reported earlier.

"The escalation has spooked a market that was already suffering from supply constraints and robust demand. The relatively low inventories mean buffers against further disruptions are thin," ANZ Research analysts said Feb. 25.

Consequently, trade sources said they expect Western arbitrage volumes to remain thin. Meanwhile, blendstock demand for naphtha among gasoline producers is expected to decline, amid a declining reforming spread.

The Singapore reforming spread, the difference between Singapore 92 RON gasoline and the Singapore naphtha derivative, narrowed $1.89/b on the week to $11.85/b at the Asian close Feb. 25, Platts data showed. The thin spread makes it economically unviable for gasoline producers to use naphtha as a blendstock, weighing on naphtha blendstock demand.