Weak US demand drives rare shipments of USWC naphtha to North Asia

Singapore — Asia is slated to receive rare shipments of US West Coast-origin naphtha, with at least two Medium Range tankers chartered for April-loading cargoes, trade sources told S&P Global Platts this week.

"Naphtha very rarely exports from the USWC," said a Singapore-based naphtha trader.

US gasoline demand has seen a decline as most of the country is under mandatory stay-at-home orders to contain the coronavirus pandemic. The containment measures have crippled demand for gasoline blending, leaving light and full-range naphthas sidelined from the gasoline pool.

Also, coast-to-coast refinery run cuts in the US have reduced reformer rates, cutting demand for heavy naphtha.

"Maybe this is naphtha for blending into the gasoline pool, as demand for gasoline is extremely low at State-side," said a MR shipowner source in Asia.

USWC naphtha cheaper to source and ship

S&P Global Platts assessed standard and heavy naphtha barges in US Gulf Coast at waterborne gasoline minus 17.25 cents/gal and minus 12.25 cents/gal, respectively, Wednesday. As a flat price, standard naphtha registered 43.79 cents/gal and heavy naphtha closed at 48.79 cents/gal.

Standard naphtha averaged 37.9 cents/gal over the past 20 trading days, a 60% drop compared with the previous 20-day average of 95.04 cents/gal. Heavy naphtha averaged 43.41 cents/gal over the past 20 days, a 56% drop compared with the previous 20-day average of 43.41 cents/gal.

In contrast, USWC naphtha was heard at a discount in the minus 30 cent/gal range to waterborne gasoline, much cheaper than product in the US Gulf Coast, said a US market source.

"And their [USWC] freight is lower to the East so would think they start from a position better than the USGC if one had the logistics," a US trader said.

A US shipowner said freight for the USWC-Japan route was recently around lump sum $750,000 but has since firmed up.

"Now owners are talking closer to [lump sum] $850,000 to $900,000," he said.

Naphtha, gasoline exports

The two latest shipping fixtures heard were by Marathon and Trafigura, for 38,000 mt naphtha cargoes loading off April 24 and April 18, respectively.

"It's a first under Marathon name but has been done before via Andeavor or Tesoro," a second US trader said.

Platts data showed that in early February 2015, Tesoro had exported naphtha from USWC on the Nord Organiser, however, further details or other exports are unknown.

BP's Cherry Point refinery typically produces gasoline, however, BP had chartered the Navig8 Strength to lift naphtha loading April 18 from Cherry Point to North Asia, said sources.

"BP has the infrastructure," the first US trader said.

Also, Pilot had fixed the Galissas for a USWC to North Asia voyage, loading April 14, at a lumpsum freight of $675,000, which sources said could be carrying either naphtha or gasoline.

USWC unleaded 84 gasoline averaged 42.45 cents/gal over the past 20 trading days, a 72% slump compared with an average of 151.8 cents/gal in the previous 20 day period. Similarly Los Angeles CARBOB registered an average of 42.05 cents/gal over the past 20 days, a 72% decrease compared with an average of 151.81 cents/gal in the previous 20-day period.

"It's true [naphtha is being exported from USWC to Far East] and probably gasoline too," said a UAE-based naphtha trader closely following the matter.

Influx of arbitrage into Asia

Traders said arrivals of Western arbitrage naphtha cargoes to Asia were slated to reach 2.7 million in May, surpassing the typical regional net short of 2 million mt each month. However, there are some delays for US shipments, which will see some cargoes slip into the H1 June delivery cycle, sources said.

Over 500,000 mt of USGC naphtha loading in April has been booked for arbitrage export into Asia, and chartering was still ongoing for loadings in the third decade of April, according to sources.

Positive petrochemical margins, particularly for propylene, has prompted Asian steam crackers to run at high rates, with some South Korean crackers at up to 105% operation rate for April, Platts earlier reported.

Asian end-users were cautious about downstream demand moving forward, but were keen to bargain hunt with US-origin naphtha cargoes amply supplied in the region.