Asia light ends: Key market indicators May 31-June 4

The Asia light ends market was mixed in midmorning trade May 31, with gasoline under pressure from new COVID-19 restrictions in parts of Southeast Asia and a weaker US RBOB crack.

The naphtha swaps backwardation was widening though end-users were starting to see narrower margins for ethylene production due to new steam cracker startups.

Asia LPG is expected to see support from demand for Middle East cargoes amid shortfalls in US flows.

The new front-month ICE August Brent crude futures was at $69.13/b by 0356 GMT May 31, S&P Global Platts data showed.

Gasoline

** The June FOB Singapore 92 RON gasoline swap continued to ease in early May 31 trade, down 1.13% from the previous trading session at $74.70/b, as a weaker crude plus pullback in the US RBOB-Brent crack injected weakness to the motor fuel complex.

** The US RBOB-Brent crack was set to retreat for the second straight session. It was seen at $20.85/b at 0200 GMT May 31, weakening 1.33% from the previous trading session. This easing came on expectations of slower US trading activity at the start of the week, particularly with the US markets closed for Memorial Day May 31, sources said.

** Headwinds also await Asia's gasoline market. Malaysia, a large buyer of high-octane gasoline, will reenter into a nationwide two-week lockdown from June 1 in an attempt to control the spread of COVID-19.

** Ho Chi Minh City will also reimpose movement curbs and social restrictions for two weeks starting May 31, as the Vietnamese city rushes to test all its 13 million residents after a surge in new coronavirus cases. Hanoi, another key gasoline demand center, has also placed new restrictions, which have led to driving activity in the northern city falling to a two-month low at 54% below baseline levels as of May 29, according to mobility data from Apple.

Naphtha

** Physical C+F Japan naphtha fell 50 cents/mt from the Asian close May 28 at $614.75/mt midmorning May 31, tracking lower crude.

** Buying activity in the week started May 30 is expected to begin for the second-half July-delivery cycle, with the half-month roll on June 1.

** A firm sentiment was reflected in the swaps backwardation structure, as front-month June-July Mean of Platts Japan naphtha swap was last assessed up 75 cents/mt week on week at $6.50/mt at the Asian close May 28. Brokers pegged the spread wider at $6.75/mt in midmorning trade May 31, Platts data showed.

** While steam cracker startups in South Korea over H2 June had boosted demand, naphtha end-users were beginning to face slimmer margins for ethylene production due to the startups. Although still above breakeven, the key CFR NE Asia ethylene spread to benchmark C+F Japan naphtha cargo had narrowed $90.625/mt on the week to $409.75/mt, Platts data showed.

LPG

** Saudi Aramco is due to announce June contract prices May 31, with traders expecting propane to be set between $500/mt and $515/mt, up $5-$20/mt versus May CPs, and butane between $495/mt and $510/mt, up $20-$35/mt from May.

** The front-month June CP propane swap was notionally indicated May 31 at $525/mt versus $524/mt May 28.

** The June propane CP swap was indicated $5/mt above butane versus $4/mt the previous session.

** The June-July CP propane swap contango was indicated at $3/mt from $4/mt the previous session, while the July-August structure was at parity from a 50 cents/mt backwardation in the previous session.

** If Aramco were to set the CPs as forecast, these will be a rebound from two declines in a row.

** Healthy Middle Eastern supply -- with major producers accepting June nominations without cuts or delays and Kuwait regularly selling by tenders -- would help offset the relative shortfall of US LPG due to multiple cancellations of June-loading cargoes, traders said. The demand for Middle East cargoes in Asia helps support the CPs.