SINGAPORE: Asia’s naphtha crack extended gains on Wednesday, climbing to a fresh one-and-a-half-month high as a tightening East-West (EW) arbitrage window pushed the near-term supply outlook lower.
“EW spread narrowed a lot and on paper, arbitrage window looks closed, so supplies from the West are expected to drop in June-July,” said an industry analyst.
“European demand, especially for gasoline blending seems quite strong ahead of summer driving season and lots of travel,” said the analyst.
The naphtha crack climbed to $103.45 a tonne on Wednesday, up from $101.38 per tonne in the previous session and its highest since March 26.
The front-month East-West spread was $11 a tonne on Wednesday, unchanged from the previous session but near a two-month low of $10.50 a tonne on Friday, Refinitiv data in Eikon showed.
Meanwhile, Asia’s gasoline crack eased from a more than one-week high in the previous session but sentiment remained supported by signs of falling inventories in the United States and the prospect of a pick-up in summer fuel demand in the United States and Europe.
The gasoline crack in Singapore slipped to $6.81 per barrel on Wednesday, compared to $7.09 per barrel in the previous session.
US gasoline inventories were seen falling for the first time in five weeks, down by roughly 700,000 barrels last week, an extended Reuters poll showed on Tuesday.
“To a large extent, the current bull-run in gasoline originated in the spate of refinery outages caused by the Big Freeze,” said JBC Energy in a note on Wednesday, referring to the historic February icy spell in the southern US states that knocked out nearly a quarter of the country’s refining capacity.
The downward impact of the Big Freeze on secondary unit refining capacity proved to be worse than the shut-ins caused by the coronavirus in April 2020, said JBC, citing fresh EIA data.
“The big difference of course being that these outages were unplanned and arose at a time when refiners would have wanted to begin ramping up runs to meet the anticipated rise in US product demand on the back of the successful vaccine rollout,” said the Vienna-based research consultancy.
“Without this fundamental support, global gasoline cracks would be substantially lower than they are now,” said JBC.
“That said, the shining star that is Asian gasoline is expected to lose its lustre as export opportunities to the US dry up and the local market feels the brunt of weakening Indian demand and an ebb in Ramadan-related buying.”
Light distillates stocks held in Fujairah rose 1%, or 69,000 barrels, to a two-week high of 5.33 million barrels in the week ended May 3, data via S&P Global Platts showed. Compared with the same time last year, however, Fujairah light distillate inventories were 21% lower. Weekly Fujairah light distillate stocks have averaged 6.81 million barrels so far this year, compared to 6.76 million barrels over the same period in 2020.