Outlook for March-loading condensate cargoes seen bearish amid oversupply, sluggish demand

Ample supply of Australia's North West Shelf condensate amid slim downstream product margins was weighing on sentiment in the light sweet condensate market ahead of the commencement of trading for March-loading barrels, traders told S&P Global Platts Jan. 6.

The March-loading program for NWS condensate emerged this week with three 650,000-barrel cargoes, one more than for February, according to sources.

BHP holds the first cargo for March 5-9 loading, Woodside the second for March 16-20 and BP the third for March 29- April 2, sources said.

Upside potential for light end distillate product cracks was seen limited, with many traders bearish on the March trading cycle.

"[Cash differentials for] March loading [cargoes] may be weaker as [naphtha] cracks are weaker," a regional condensate trader said.

The second-month naphtha swaps crack against Dubai swaps has averaged $1.17/b in January to date, compared with $2.95/b over December, Platts data showed.

"Downstream demand is weak; low [refinery] runs due to poor margins and cheap naphtha," a Singapore-based condensate trader said.

Pockets of condensate supply overhang from the earlier loading cycle may also exert downward pressure on cash premiums in the March trading cycle.

A 650,000-barrel cargo of NWS for Jan. 25-29 loading held by BP could still be unplaced, according to a trader. "There is still an unplaced NWS cargo so [there will be] four NWS [cargoes] in market for March," he said.

All eyes are now on the monthly buying activities of Indonesia's Pertamina, which purchases on behalf of PT Trans-Pacific Petrochemical Indotama, or TPPI, to gauge demand-side support in coming days.

One trader said Pertamina may have no remaining spot demand amid sluggish naphtha cracks and a slew of procurements earlier for March-delivery barrels, including NWS and Alba condensate.

Pertamina last month bought a 650,000-barrel cargo of NWS from Shell for March 1-21 delivery at a premium in the high $3s/b to Platts Dated Brent assessment, CFR Tuban, equivalent to around low $2s/b to Dated Brent, FOB, according to traders.

Asian naphtha sluggish

Weakness in the olefins and aromatics sectors has also led to a sluggish naphtha market.

This was reflected in the CFR Japan naphtha physical crack against front month ICE Brent crude futures falling 17.56% week on week to $122.45/mt at the Asian close Jan. 6. The physical crack was last lower at $122.15/mt on Sept. 3, 2021, Platts data showed.

"Margins have been poor for some time. It got aggravated because of premiums being elevated by supply issues," one end-user source said.

"I think petrochemical margins are still quite depressed at this point," a Singapore-based condensate trader said.

Demand for naphtha as a steam cracker feedstock has been sluggish amid weak olefins margins, with the key CFR Northeast Asia ethylene to C+F Japan naphtha spread narrowing $16.125/mt on week to $293.875/mt at the Asian close Jan. 6, Platts data showed, below the typical breakeven level for non-integrated producers of $350/mt.

The spread has been below $350/mt since Dec. 23, which could prompt steam cracker operators to reduce run rates, sources said.

In the aromatics sector, the key CFR Taiwan/China paraxylene to C+F Japan naphtha cargo spread narrowed $11/mt day on day to $194.545/mt at the Asian close Jan. 6, Platts data showed.

This was bearish for splitter run rates, as it was below the typical breakeven level for PX from feedstock naphtha of around $280-$300/mt, sources said.

"We expect Asia naphtha cracks to see further declines through H1 2022 after peaking in December. Rising regional naphtha supply will outpace demand growth as refineries ramp up in a bid to capture positive refining margins," said Aaron Cheong, senior feedstock analyst at S&P Global Platts Analytics.

"This will also come at a time when Asia crackers enter spring maintenance season from March-April 2022, while weak aromatics margins will continue to limit demand growth," he added.