Naphtha strength: Atlantic Basin fails to supply Asian pull
As we witness global naphtha cracks continuing strength since the spring, we can see that seaborne naphtha imports continue on their impressive recovery. Strong flows are expected to continue on the back of firm petrochemical demand East of Suez and European gasoline blending.
As we witness global naphtha cracks continuing strength since the spring, we can see that seaborne naphtha imports carry on with their impressive recovery reaching 3.34 mn b/d in July. Strong flows are expected to continue on the back of firm petrochemical demand East of Suez and European gasoline blending. Reduced arrivals in June were likely due to a lack of availability, contributing therefore to the robust price levels.
As a specific illustration of continuing strong Asian import requirements, naphtha loadings heading to Japan surged 50% from June to July from Persian Gulf and Western Med, as we track growing volumes loading principally from the Middle East. Flows from top suppliers of naphtha to Japan, Qatar and UAE, rose by over 75,000 b/d in July, compared to June 2021.
Strong naphtha exports over the recent weeks, as well high product exports in general, have left the Persian Gulf with a close to year-to-date low availability of ballasting clean product vessels (everything from MR to LR2) within the 0-11-day window, potentially providing support for the respective freight rates.
Meanwhile, over in Europe, naphtha supplies are to quite some extent drawn into the gasoline production and blending pool. With gasoline cracks leading refining margins amid strong Atlantic Basin import demand, European refineries are hiking gasoline production against their usual practise. In spite of much lower refinery runs, European gasoline exports have been higher in Jan-Jul 2021 than the corresponding period in 2019.
This development is also reflected in import trends for specific naphtha grades, suitable for gasoline production and blending. For instance, Europe is pulling heavy naphtha grades from PADD 3 towards reformers in Northwest Europe, amid healthy reforming margins. Naphtha arrivals into the ARA region from the US have been steadily increasing since February, reaching a multi-year high of 128,000 b/d in July. In addition, arrivals from Russia into Europe increased 36% from June to July, including a chunk of full-range material. But volumes loaded in July expected to arrive in August could be curtailed by domestic needs considering pronounced tightness in the domestic gasoline market (see this article for current developments in Russia).
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