Australia's March-loading NWS condensate cash differentials pressured by weak cracks, downstream margins

Australian North West Shelf condensate cargoes loading in March were valued lower as the complex continues to face weak downstream margins, further compounded by declining naphtha cracks and more attractive naphtha prices, according to sources.

The March-loading trade cycle saw two 650,000-barrel cargoes of NWS condensates scheduled, unchanged from the previous month, sources said.

Australia's Woodside Energy holds the first cargo for loading over March 13-17, while Chevron holds the other cargo for loading over March 29-April 2.

Valuations for the Australian condensate were reported at discounts in the high $4s/b to $6s/b to Platts Dated Brent crude assessments, FOB, compared with previous trade levels, which saw discounts of around $4/b against the same benchmark for February-loading barrels.

Sentiment heard was largely bearish, as the complex remained hindered by persistently weak downstream petrochemical margins. The situation was further exacerbated by declining naphtha cracks, longer supply and more attractive naphtha prices.

"Structurally, we are seeing more weakness in [the] March condensate market. The last cycle was tight, unlike this one," a trader said.

The Platts-assessed second-month naphtha swaps crack against Dubai crude swaps averaged minus $5.05/b in January so far and stood at minus $7.33/b at the Jan. 13 Asian close -- the lowest since reaching minus $7.70/b on Aug. 1, 2024 -- compared with the December average of minus $4.17/b, S&P Global Energy data showed.

"I don't think splitters can cut runs anymore. For those that can switch to naphtha, we expect more [preference for] naphtha as condensates look expensive," another trader said.

Meanwhile, Indonesia's Pertamina -- a key buyer of NWS condensate -- was heard to have not purchased any condensate grade via its latest crude and condensate tender for March delivery, which closed Jan. 8. Trade sources said the refiner chose to procure naphtha instead, with a trader attributing the decision to the lack of recovery in its splitter demand.

The focus now shifts to QatarEnergy's offering of low sulfur condensate for March loading via its monthly spot tender, which closes Jan. 14 and has next-day validity.

In the previous trading cycle, the company sold one 500,000-barrel cargo of deodorized field condensate for February loading to Hanwha TotalEnergies at a premium of around $1.85/b to Platts front-month Dubai crude assessments, FOB, Energy reported earlier, citing trade sources.

QatarEnergy last sold one January-loading cargo of LSC to Aramco Trading Co. at a premium in the $1s/b against the same benchmark.

Weak downstream demand pressures Asian naphtha

The Asian naphtha market continues to be impacted by a lack of recovery in the downstream petrochemicals sector, further exacerbated by volatile crude prices.

Uncertainty in upstream crude prices has led end-users to adopt a wait-and-see approach for purchasing second-half February naphtha supplies, with some heard opting to buy LPG instead due to elevated naphtha prices.

The naphtha complex also saw cracks tapering off as it lagged behind the rise in crude prices, affected by weak demand from the petrochemicals sector.

The Platts-assessed CFR Japan naphtha physical crack against front-month ICE Brent crude futures stood at a near five-month low of $73.35/mt at the Jan. 13 Asian close, down $8.63/mt day over day and $20.23/mt week over week, Energy data showed. The physical crack was last lower on Aug. 19, 2024 at $72.55/mt.

"Looking at the cracks currently, it is definitely more economical to purchase naphtha than condensates," a splitter operator said.

Meanwhile, aromatics margins continued to hover below typical breakeven levels of around $280-$300/mt but were slightly higher month over month, driven by a reduction in paraxylene production in China.

The Platts-assessed spread between CFR Taiwan/China PX and CFR Japan naphtha physical averaged $180.14/mt as of the Jan. 13 Asian close, narrowing $4.80/mt from an average of $184.94/mt in December, Energy data showed.

Market participants expect the PX market's recovery in 2025 to be challenging, due to weak gasoline blending demand from the US and a struggling Chinese real estate and domestic market.