- There is a 50% cut in Saudi crude production following last month’s attacks on oil infrastructure.
- This is likely to result in a proportional decrease in LPG production by 10,000-15,000 b/d on a monthly average basis.
- In Asia, the balance Oct/Nov swap spread and Nov/Dec swap spread were assessed at plus $3.30/b and plus $2.05/b respectively.
- Following the Saudi attacks, the Oct/Nov swap spread peaked at $3.05/b on September 17, while the Nov/Dec swap spread peaked at $1.74/b on September 20.
- Physical naphtha cargoes of minimum 65% paraffin content for H2 November delivery into Japan were heard traded at close to $20/mt.
According to a podcast published by Platts, the middle distillate complex in Asia is expected to maintain a firm footing in the fourth quarter.
Supply concerns on the horizon
This firm footing has been recorded amid looming supply concerns despite Saudi Arabia’s full restoration on all of its crude oil production following the September 14 attacks. Industry sources in the bull camp also anticipate rising gasoil demand in the run-up to IMO 2020, while the jet fuel market is expecting a pick-up in seasonal heating requirements for co-distillate kerosene ahead of the peak winter period in the northern hemisphere.
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.
Middle-east’s supply woes
Qatar Petroleum’s delays for November-lifting LPG cargoes to some importers in its acceptances of term nominations have 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.
Cut in Saudi’s crude supply
According to experts, 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.
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.
Increase in gasoline demand
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 and the backwardation is enough to cost one.
Bearish naphtha supply
The Asian naphtha market would likely be bullish in the week ahead as participants expect the Persian Gulf supply to be tight while Saudi Arabia progressively restores its oil infrastructure and 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.
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Source: Platts&HellenicShippingWorld
