Asian light ends kick off Q4 on bullish note as supply worries mount

The Asian light ends market has kicked off the fourth quarter on a strong footing amid increased concerns over tightness in Asia and the Middle East due to refinery turnarounds and reduced exports from Saudi Arabia, market sources said.

Light distillates are expected to hold firm in the leadup to winter, when demand for propane as a heating fuel picks up and naphtha-fed steam crackers restart after maintenance.

MIDEAST LPG TIGHTNESS FANS WORRIES

Qatar Petroleum’s delays for November-lifting LPG cargoes to some importers in its acceptances of term nominations has compounded worries over Middle East LPG supply. The delays come as QP’s No. 1 condensate splitter at Laffan Refinery 2 is due to undergo maintenance throughout November, market sources said.

The market is awaiting acceptances of term nominations this week by ADNOC and particularly Saudi Aramco. Views were mixed on whether or not the producers could meet lifters’ loading dates.

A 50% cut in Saudi crude production following last month’s attacks on oil infrastructure would likely result in a proportional decrease in LPG production by 10,000-15,000 b/d on a monthly average basis, a significant portion of which would have been exported to Asia, S&P Global Platts Analytics said.

“Some were quite pessimistic for November,” one market source said. But a trader said: “As the Saudis have already announced that recovery was at the end of September, I think they will announce their acceptances due mid this month as per usual operations.”

This followed delays for October loadings faced by some lifters from North Asia and India, prompting two state firms in India to seek spot cargoes via tender.

To ensure supply amid the uncertainty, Bharat Petroleum Corp. Ltd. issued a tender that closes Wednesday seeking up to 132,000 mt of mixed LPG in several parcels for mid-October to December deliveries.

With Asian buyers rushing to compensate for the Saudi and Iranian supply shortfall, the US price arbitrage to Asia widened, bringing new flows from North America.

GASOLINE DEMAND PEAKS ON REFINERY SHUTDOWNS

The Asian gasoline market is expected to extend its bullish momentum this week as firm demand for cargoes amid regional supply-side tightness supports overall sentiment, market sources said.

Indonesia, India, Egypt and Kuwait have emerged to buy spot gasoline while on the supply side, Japanese refiners were heard to have shut a combined 385,000 b/d of refining capacity.

In addition, refineries in India, Vietnam, South Korea, Taiwan and Indonesia were also heard to be currently undergoing turnarounds, S&P Global Platts reported earlier, crimping supply.

“The [gasoline] market is very strong now. Supply is tight due to all the refinery turnarounds in the region and demand is good. The backwardation is enough to cost you,” a Singapore-based gasoline trader said.

The backwardation in the FOB Singapore 92 RON gasoline swap market Friday was wider than levels in the week after the September 14 attack on Saudi Arabia’s oil infrastructure.

At the Asian close Friday, the balance October/November swap spread and November/December swap spread were assessed at plus $3.30/b and plus $2.05/b respectively.

In the week following the Saudi attacks, the October/November swap spread peaked at $3.05/b on September 17, while the November/December swap spread peaked at $1.74/b on September 20.

NAPHTHA SUPPLY TIGHT

The Asian naphtha market would likely be bullish in the week ahead as participants expect Persian Gulf supply to be tight while Saudi Arabia progressively restores its oil infrastructure and as Qatar Petroleum will be shutting its 146,000 b/d No.1 condensate splitter at Ras Laffan for planned maintenance in November.

Reflecting the strength, physical naphtha cargoes of minimum 65% paraffin content for H2 November delivery into Japan were heard traded at close to $20/mt premium to the Mean of Platts Japan naphtha assessments on a CFR basis. The CFR Japan spot cash differential was assessed at a 16-month high of plus $19/mt Friday, revisiting the same level last seen on May 25, 2018, Platts data showed.

The CFR Japan physical naphtha crack against front month ICE Brent crude futures stood at $56.78/mt Friday, higher than the $43.53/mt average over September 16-30.
Source: Platts