Asia’s light ends market was firmer in mid-morning trade July 5, with gasoline supported by stronger US RBOB-Brent crack over the holidays and limited export seen from North Asia.
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Naphtha is propped up by less East-bound cargoes from Europe, while healthy LPG demand is expected from China and India in August.
Front-month ICE September Brent crude futures was at $76.05/b by 0338 GMT July 5, down 10 cents/b from the previous close.
** August FOB Singapore 92 RON gasoline swap inched higher in early July 5 trade, pegged notionally around $83.45/b, up 0.97% from the previous session, as bullish supply-side sentiment in Asia and stronger US RBOB-Brent crack drove the motor fuel complex.
** Bullish supply-side sentiment is likely to keep Asia’s gasoline market supported this week, industry sources said, adding that other than China, gasoline exports from South Korea – another major gasoline exporter in Asia – in July were likely to be thinner versus June, with more barrels channeled inward, as South Korean driving activity as of July 3 was recorded at 24% below baseline levels, improving from around 40% below baseline levels in mid-April, mobility data from Apple showed.
** Support is also expected from the West. The US RBOB-Brent crack at 0230 GMT July 5 was seen at a four-week high of $20.52/b and was last higher on June 9 at $21.14/b. The uptick in the US RBOB-Brent crack comes as industry participants eye the US Energy Information Administration report this week to provide indications of demand over the US independence Day-holiday weekend.
** However, lackluster gasoline demand elsewhere in Asia is expected to cap its uptrend, sources said. Indonesia, Southeast Asia’s top buyer of gasoline, has reimposed strict lockdowns as of July 3, with movement curbs to extend across Java and Bali, representing the majority of the country’s population. Indonesia on July 3 reported a record 27,913 cases of new daily COVID-19 infections, John Hopkins University data showed.
** Physical C+F Japan naphtha rose $12.50/mt from the July 2 Asian close and was pegged at $688.25/mt mid-morning July 5 on strength in crude and the European naphtha markets.
** Firm sentiment was reflected in naphtha swaps, as brokers pegged front-month August-September Mean of Platts Japan naphtha swap spread at $8.25/mt in mid-morning trade, up 25 cents/mt from the July 2 close, S&P Global Platts data showed.
** Fewer East-bound arbitrage naphtha volumes are expected from Europe on strong European crackers demand, narrowing the East-West spread to $13.75/mt in mid-morning July 5, said brokers. This was down from $14.50/mt at the Asian close on July 2, Platts data showed.
** A recovery in olefin margins also supported sentiment, with key CFR Northeast Asia ethylene spread to benchmark C+F Japan naphtha cargo rising to $294/mt on July 2, up $60.25/mt week on week, Platts data showed. This was above the breakeven of $250/mt for integrated producers, sources said.
** CFR Japan naphtha physical crack against front-month ICE Brent crude futures rallied to near three-year highs of $113.15/mt on Asian close July 2, up $1.80/mt day on day, Platts data showed. The crack was last higher on July 31, 2018, at $114/mt, Platts data showed.
** Front-month August propane contract price swap was notionally indicated at $654/mt July 5, compared with $648/mt on July 2, and $34/mt above July term CPs.
** July propane CP swap was indicated at $7/mt above butane July 5, versus $5/mt in the previous session.
** August-September CP propane swap was indicated at a $5/mt backwardation July 5, from $4.5/mt in the previous session, while September-October was indicated at parity, versus a $1/mt contango in the previous session.
** The recent uptrend in Asia was driven by robust US Mont Belvieu prices with US production growth seen slowing, along with strength seen in gasoline, naphtha and crude, traders said.
** Indian demand is expected to recover in August, one trader said, though another trader said Indian spot demand would depend on how much term supply they have during the time. “If they take less term cargo, more spot purchases would be seen,” he said.
** Chinese demand remains healthy though PDH plant margins “are not as great as these were,” the trader added.
** Qatar Petroleum has announced acceptances of August-loading term cargoes without cuts or delays, keeping the Asian market well supplied.