Asian gasoline lends support to light ends while naphtha, LPG sag on oversupply

Singapore — The light ends market in Asia is showing a mixed picture, with gasoline's strength expected to continue into September on surging regional demand and refinery turnarounds, while naphtha makes a slow start to the seasonal Q4 demand peak amid volatile crude oil prices, market sources said Friday.

Asian LPG was, meanwhile, sagging under the weight of heavy supply from the US and steady Middle East volumes, but may pick up when winter demand kicks in.

GASOLINE HOLDS FIRM ON PROMPT DEMAND

"It is possible that the strength [in gasoline] will continue even until September, during which some refineries will be going into autumn turnaround. For now, demand for prompt cargoes is helping to support the market," a Singapore-based gasoline trader said.

The Asian gasoline market had demonstrated resilience last week in the face of increased volatility in international crude markets, underpinned by fresh spot demand for September delivery cargoes, sources said.

India's Hindustan Petroleum Corp. Ltd. issued a spot tender seeking 218,000 mt of 91.6-92 RON gasoline for September and October delivery, while Indonesia's Pertamina was seeking 129,412 mt of 88 RON gasoline for September loading and delivery.

The FOB Singapore 92 RON gasoline crack against front month ICE Brent crude futures averaged $7.45/b over August 13-16, 58 cents/b higher than the $6.87/b average the week before.

The backwardation in the Singapore gasoline derivatives market similarly held firm, with the September/October spread and October/November spread widening to plus $1.44/b and $1.04/b respectively, at the Asian close Friday, according to S&P Global Platts data. The timespreads were at $1.24/b and 93 cents/b a week ago.

NAPHTHA SEES SLOW START TO Q4 PEAK

Trading on October-delivery naphtha cargoes started last week, but activity was slow despite the market entering a peak seasonal demand period, sources said. Volatile crude movements and ample supply was blamed for the slow start.

Demand for naphtha typically ramps up going into Q4, even hitting a seasonal peak. Last week, however, buying interest from petrochemical producers was thin on H2 September delivery spot paraffinic naphtha, with some cargoes trading at discounts, reflecting the weak market. South Korea's YNCC had bought H2 September delivery naphtha cargoes at a $2/mt discount to Mean of Platts Japan naphtha assessments, CFR Korea.

For heavy full-range naphtha, sources were expecting demand to emerge and support the market, sources said.

LPG STAYS SOFT ON OVERSUPPLY

Asian LPG was still soft as abundant stockpiles and production in the US, which was flowing to Asia, pressured the market.

With ADNOC and Saudi Aramco not cutting allocations in its term acceptances for September, and either meeting dates or advancing loadings, Middle East shipments are well placed to meet regional demand, especially from China.

Steady Middle East supply is also putting pressure on time spreads, with the Saudi Contract Price propane swap for September/October widening again in contango, while the November/December contango is even wider.

This week, traders are watching if Indonesia would seek more spot cargoes after concluding purchases via spot tenders in recent weeks, even as its term tender is being processed.

With the discount of propane to MOPJ naphtha again tipping over the $100/mt mark, hopes are also on Taiwan's petrochemical maker Formosa to buy spot LPG for its steam cracker. But maintenance at one of its units could limit LPG demand over the next month, sources said.

Traders said that with winter demand expected to emerge soon, the persistently contango market structure up to Q4 could play a part in encouraging north Asian purchases, though buyers are still waiting for prices to slip further before making their move.

--Mark Tan, mark.tan@spglobal.com

--Sue Koh, sue.koh@spglobal.com

--Ramthan Hussain, ramthan.hussain@spglobal.com

--Wendy Cheong, wendy.cheong@spglobal.com

--Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com