USGC naphtha barge differentials rise on higher demand for exports to Asia

Houston — Naphtha barge differentials along the US Gulf Coast moved higher amid an influx of shipping inquiries to send cargoes sailing.

S&P Global Platts assessed light straight run naphtha barges 4 cents/gal higher day on day at 87 cents/gal on Sept. 9. As a differential to September natural gasoline, C5, at the Enterprise facility, LSR naphtha barges moved 75 points/gal higher to plus 4 cents/gal.

Heavy naphtha barges moved 5.15 cents/gal higher day on day to 95.93 cents/gal. As a differential to waterborne conventional gasoline, heavy naphtha barges moved 3.25 cents/gal to minus 17.50 cents/gal.

Standard naphtha barges maintained a 5.25-cent discount to their heavier counterparts.

Shipping sources said Equinor, Phillips 66, Valero and Lukoil were looking for Medium-Range tankers to cover naphtha cargoes for September loading dates to sail the US Gulf Coast-Far East route.

Separately, three Long-Range 1 tankers were heard to be placed on subjects to load naphtha out of the US Gulf Coast and sail to the East. Two of the LR 1 tankers were heard to be booked with a Brazil option.

Despite the decline in crude prices, tight supply in the Asian naphtha complex kept naphtha prices supported in the East.

With Europe not satisfying Asia's appetite for naphtha and the arbitrage from the US Gulf Coast previously shut, market players in the US were looking to export barrels. However, a reluctance from ship owners to send their Medium Range tankers to Asia kept ships from getting fixed.

S&P Global Platts assessed the 38,000 mt USGC-Japan/South Korea route at lump sum $1.25 million.

Market sources said the arbitrage for Gulf Coast naphtha barrels to flow East was open.

On the USGC-ARA route, a To Be Nominated Hafnia Medium Range tanker was placed on subjects by Chevron to load naphtha on Sept. 12-13 at Worldscale 62.5.

A recent dropoff in clean tanker freight on Medium Range tankers in the Americas may have spurred the interest in shipping naphtha from the USGC to Asia.

MR freight on the USGC-Japan/South Korea run fell to lump sum $1.225 million Sept. 3-4, the lowest levels observed since June, and LR1s saw similar pressure, falling to lump sum $1.925 million Sept. 9, the lowest levels since mid July.

Both MRs and LR1s have faced a bout of inactivity out of the USGC since the last decade of August as petroleum product demand remains suppressed in the USGC and Latin America. An excess of diesel in Europe has also closed the arbitrage opportunity from the USGC, leaving many tankers in the USGC region with not enough cargoes to keep sentiment afloat.

"Returns are so crappy, we've basically hit the [freight] floor. It could go lower but that would just be adding insult to injury," a shipbroker said.

Despite the poor rates in the Americas, owners have shown resistance for voyages to Asia, as freight in that region has also been weak for most of the second quarter of 2020. Fixing on the Asia-bound routes, therefore, has been few and far between, as owners remain reluctant to voyage to a weak market on low-to-negative earnings.

Shipowners were hoping that the recent influx of naphtha cargoes for European and Asian discharges, therefore, could boost activity out of the USGC and give an opportunity to bring rates and earnings back up.