Asia light ends - Key market indicators this week

Singapore — The Asian light ends market opened the week on a firmer note, underpinned by gradual demand recovery as economies restart, and as supply tightened for LPG with reduced production in Saudi Arabia and the US.

Markets were also boosted by a stronger crude complex. July ICE Brent crude futures rose $1.56/b from Friday's Asian close to $33.71/b at 0300 GMT Monday.

GASOLINE

** FOB Singapore 92 RON gasoline swaps for June opened Monday morning at a two-month high of around $34.47/b, driven by the twin upward momentum in crude oil prices and the US RBOB/Brent crack.

** The stronger crude complex was buoyed by increased crude demand with the restart of some economies, while expectations of increased driving in the US bolstered the RBOB crack. The US RBOB/Brent crack rose 13.33% from Friday's Asian close to $8.55/b at 0200 GMT Monday.

** Concerns over a second-wave of coronavirus infections will cap gains this week as participants closely monitor South Korea and China's recovery after fresh movement restrictions were announced last week. India, over the weekend, had also announced another extension of its nationwide lockdown to May 31, capping the region's demand recovery.

LPG

** Front-month June CP propane swap notionally indicated Monday morning at $315/mt, up $15.5/mt from Friday's Asian close on stronger crude, and $25/mt below the May Contract Price.

** Market this week will focus on supply from Saudi Arabia, as acceptances of June-lifting term nominations are set to be announced by mid-week, for which traders had expected further cuts or deferments, after the kingdom pledged to deepen oil supply curbs next month by an additional 1 million b/d below its quota under the OPEC+ pact.

** Asia will also watch if the arbitrage from the US will be wide enough to keep flows to Asia steady for June arrivals and fill any Saudi shortfalls, even as the US Energy Information Administration's short-term energy outlook last week lowered the US LPG production forecast for the second time, with propane down to 1.92 million b/d for 2020 after recent low oil prices.

** Other than North Asia, led by China and Japan, demand from India and Indonesia remains in a lull, moderating a sharp market uptrend.

** The June/July CP propane swaps backwardation was notionally pegged at $7/mt Monday from $12/mt Friday, while the July/August backwardation widened to $6.75/mt versus $3/mt.

NAPHTHA

** The CFR Japan naphtha physical benchmark opened Monday at $274.375/mt, up $21.50/mt from Friday's Asian close on the back of stronger crude.

** Purchasing for H1 July delivery naphtha was due to begin this week. An overhang of cargoes from the H2 June delivery cycle was expected to spillover to H1 July.

** Heavy supply pushed the CFR Japan naphtha crack against ICE Brent crude futures into negative terrain briefly last Thursday, before it rebounded to plus $11.75/mt Friday. On Monday, the crack opened higher by $9.80/mt to $21.55/mt, boosted by European naphtha strength.

** The East/West spread between June CFR Japan naphtha and CIF NWE naphtha narrowed Monday morning, falling 25 cents/mt to $22/mt since Friday's close, trailing lower freight rates for the LR2 Mediterranean-Japan voyage, which was down $100,000 day on day at $3.5 million last Friday.

** Netback FOB Singapore and FOB Arab Gulf naphtha prices rose as freight rates eased: FOB Singapore cargo rose to $25.41/b Friday, up $2.66/b from last Monday, and FOB AG cargo rose to $202.365/mt Friday, up $64.425/b over the same period, S&P Global Platts data showed. The benchmark LR1 AG-Japan voyage more than halved intraweek, dropping Worldscale 215 points or $72.05/mt, to w175 or $50.51/mt Friday.