Wave of US naphtha cargoes booked to Asia

Energy traders have chartered at least ten clean tankers to load refined products — primarily the blendstock naphtha — in the Americas this month for shipment to Asia, where Covid-19 containment measures are loosening and petrochemical plants are starting up.

Naphtha, which competes with LPG as a feedstock for petrochemical plants, is also used in the US to blend with gasoline, but demand fell to a nearly three-decade low last week. Naptha prices have collapsed, with Gulf coast outright cash prices for heavy, full-range and light naphtha falling by about two-thirds since the end of February.

The price drop came around the same time refining and petrochemical industries began restarting in Asia. That created a wider arbitrage that also provided one of the only viable outlets for US Gulf coast producers amid a growing domestic supply glut.

Vitol booked the Seaways Skopelos, Equinor booked the Torm Troilus, Valero booked the Carina, and two charterers booked the STI Brooklyn and Wenche Victory — all medium range (MR) tankers — for Asia-bound naphtha movements with mid-April loading in the US Gulf coast. The Challenge Phoenix, another MR tanker, loaded naphtha in Houston yesterday and is steaming toward the Panama Canal en route to Asia.

Total placed the STI Expedite, a long range (LR1) tanker, on subjects for a US Gulf coast-Asia gasoline movement after the tanker failed to fix to BP for what would have been the first reported clean tanker floating storage booking in the US Gulf coast this year.

Asia-bound naphtha export activity in the Americas is not limited to the US Gulf coast. In Brazil, which is normally a refined products importer, Petrobras booked two LR1 tankers, the BW Yangtze and the Till Jacob, for naphtha export cargoes with the option to discharge in Asia.

On the US west coast, where an open export arbitrage has kept shipping rates elevated, company Tartan booked the Pag and Ardmore Seafox MR tankers for Asia-bound naphtha voyages from 15 April. BP put the Navig8 Strength MR tanker on subjects for the same trip with 10 April loading.

The much lower naphtha prices make it economical as a petrochemical cracking feedstock, but many US petrochemical plants have limited ability to run high volumes of naphtha. This leaves exports as one of the remaining avenues.

But exports to typical South American buyers were suppressed in recent weeks by spreading pandemic. Mexico, which typically buys two to three 270,000 bl cargoes of heavy naphtha each month, did not tender to purchase any cargoes for April delivery.

Gulf coast N+A naphtha is priced as differentials to the Gulf coast waterborne conventional gasoline (GC WB) while light virgin naphtha (LVN) is priced as differentials to natural gasoline (C5). Both pricing bases plummeted in March from the dual blows of a Saudi-Russia crude market-share battle and reduced products demand from efforts to limit the spread of Covid-19.

Heavy naphtha cash prices were assessed at 35.32¢/USG on 7 April, compared to 105.53¢/USG on 28 February. LVN outright values were 33.25¢/USG and 95.75¢/USG respectively for the same dates.

By Daphne Tan and Nicholas Watt