S&P Global Platts-specification standard naphtha Thursday reached its largest discount to heavy naphtha in 14 months on refiner selling and expressions of interest in shipping the blendstock from the US Gulf Coast to Asia ports.
A narrower spread between RBOB futures and US Gulf Coast naphtha is generating interest in the arbitrage to Asia, market sources said.
The sources were split on whether the arbitrage had opened but even those seeing it closed said it may open soon.
Naphtha market players have expressed interest in securing ships for Asia transit.
Valero was heard by market sources to have withdrawn offers for barges to assemble naphtha for cargo shipment, with a Valero trader not commenting on the company's position.
The refiner was not heard to have any barge naphtha on offer late Thursday.
"That arb is starting to show signs of life," a US refined products broker said.
GLENCORE BUYS
A Phillips 66 sale of a barge of 50,000 barrels of Platts-specification standard naphtha CIF Houston for September 27-29 in the Platts Market on Close assessment process led to an assessment of the blendstock at barge 87-octane gasoline minus 27.75 cents/gal, down 1 cent/gal from Wednesday.
At the same time in the MOC process, Glencore was improving a bid for Platts-specification heavy naphtha without seller interest. The bid led to an assessment for heavy naphtha at barge gasoline minus 23 cents/gal. The spread of 4.75 cents between the grades was the widest since the gap also was at 4.75 cents/gal July 14-17, 2015, on maintenance on reformers that took standard naphtha as feedstock.
Heavy and standard naphtha are largely identical with the exception of two major specifications.
Heavy naphtha has a smaller API number (minimum 58 versus minimum 63) and a higher boiling point, leaving it more versatile in petrochemicals and refinery production.
As standard naphtha lost support, attention turned toward whether naphtha was enough of a value to ship to Japan, Korea and other Asian countries that have drawn US naphtha before this year.
A strong arbitrage off the Gulf to those countries has not been seen in more than a year.
Market players say the wider spread between RBOB futures and standard naphtha has generated interest in Asia-bound cargoes.
That spread has increased 7.16 cents since September 8 to 24.26 cents/gal in Thursday's assessments.
Several market sources were split 50-50 on whether the arbitrage was open yet. "It still looks a little skinny because M {Gulf Coast 87-octane} keeps rising," a US blendstocks trader said.
Stronger Gulf Coast gasoline, the basis for naphtha, has robbed naphtha of some of the discount that could make it attractive in Asia, market sources said.
LONG-HAUL FREIGHT
Lump-sum long-haul routes to Northeast Asia shed $25,000 lump sum amid revived interest from charterers to make naphtha flows work from the Gulf Coast ports to Japan.
"I am not too sure about the arb, but the East market is still appealing for owners to get to," a broker said. "So they might take a cheaper freight."
Brokers generally indicated that traders had started to ask about Far East disports as part of their options cocktail to other long-haul destinations, including Chile, recently.
In particular, the Medium Range Pyxis Delta, a 324,000-barrel, icebreaker was heard to be on order for loading naphtha on the Gulf to move to Northeast Asia.
According to cFlow, the Platts trade flow software, the vessel has an estimated arrival at Corpus Christi, Texas, Friday.
Platts assessed freight on the Gulf-Japan/SKorea route at $1.275 million or $32.89/mt. This works out to a time charter earnings rate of $19,000/d on the basis of a laden leg and $7,000/d on a return basis.
"At those levels [that route] is pretty week on a return basis. But what is interesting about it is that it helps the Atlantic basin clear through the tonnage glut," a shipping analyst said.
