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US Gulf Coast-Asia naphtha arbitrage flows for Nov seen recovering after storms

Highlights

Asia sees fewer October-arrival naphtha flows from the US Gulf Coast due to storms

Storm damage at US Gulf Coast refiners to limit November-arrival shipments

CFR Japan naphtha physical crack rises to near six-week high

Some market participants had resumed chartering activity for the US Gulf Coast naphtha exports to Asia, leading to a recovery in arbitrage flows for November arrivals following a storm-related disruption in trade, sources said Sept. 22.

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Severe weather at the US Gulf Coast over the second half of August and first half of September had cut off Asia from its key naphtha supplier, tightening Asia's supply for the October delivery cycle.

With refinery restoration efforts underway and port operations recommenced, about 193,000 mt of naphtha was booked for Asia from the US Gulf Coast for loading over Sept. 16-22, up from just 136,000 mt of shipments loaded in the first half of September, data from shipping sources showed.

The total September US Gulf Coast naphtha exports to Asia as of Sept. 21 were at 367,000 mt, of which 38,000 mt had an option to be discharged in Europe, sources said.

While the chartering for September was not complete, naphtha loading for the month were expected to be lower compared with August's 800,000 mt, according to data from market sources and S&P Global Platts cFlow.

Light Naphtha Supply Tightens

Light naphtha supply was slated to remain tight, as US oil producers were still working to recover production hit by Hurricane Ida end-August. Shell has said that damage to its facilities in the US Gulf Coast will push the restoration of full capacity to the first quarter of 2022.

The pace of recovery implies limited arbitrage volumes for the current November-delivery trading cycle into North Asia, sources said.

The US Gulf Coast's light naphtha grades are in demand by Asia's steam crackers, due to its high paraffin content that helps maximize olefins production at a time when margins are positive. Positive olefin margins have kept Asia's steam crackers running at full or close to full levels in September, as these end-users maximized the use of naphtha as a cracker feedstock, while rival feedstock LPG was economically unviable as an alternative.

The storm-hit US Gulf Coast had tightened the naphtha complex in Europe, which also supplies naphtha arbitrage volumes to Asia, driving prices to a near six-week high.

The CFR Japan naphtha physical crack spread against front month ICE Brent crude futures widened by $8.25/mt week on week to $135.975/mt at the Asian close Sept. 21, Platts data showed. The physical crack was last higher at $138.775/mt, Aug. 11.

"[Firmer naphtha] is because of lower arbitrage, mainly from the US Gulf Coast due to the typhoon, so light naphtha arbitrage volumes suffered," a Singapore-based naphtha trader said.

"Since light naphtha arbitrage has gone down in October, I think light naphtha spot premiums will get stronger, especially for minimum 80% paraffin content, unless the US Gulf Coast arbitrage recovers," the trader said.

Around 320,909 b/d, or 16.64%, of the US Gulf Coast's oil production remained offline, while about 566.67 MMcf/d, or 25.42%, of gas production was shut, the US Bureau of Safety and Environmental Enforcement said Sept. 21.

Americas to Asia Naphtha Fixtures

Vessel
Quantity ('000 kt)
Cargo
Laycan
Voyage
Freight
Charterer
Jo Rowan
60
NA
Sep 22
US Gulf-Far East
$1.55m
Clearlake
Agioi Fanendes
35
NA
Sep 20
US Gulf-Far East
rnr
Repsol
Electa
38
NA
Sep 18
US Gulf-TA, Japan
w55, $1.1m
P66
Norstar Intrepid
60
NA
Sep 16
US Gulf-Japan
$1.55m
Valero
High Saturn
38
NA
Sep 8
Pisco-Chiba
rnr
cnr
Tavrichesky Bridge
38
NA
Sep 7
Houston- Sendai
rnr
cnr
Emerald Express
38
NA
Sep 7
Houston-Japan
rnr
cnr
Flagship Orchid
60
NA
Sep 5
Port Arthur-Yeosu
rnr
cnr

Key: NA=Naphtha, TA= Trans-Atlantic, rnr= Rate not reported, cnr= Charterer not reported