Asian naphtha jumps following Trafigura tanker attack; East-West spread near 4-year high

A torrent of disruptions to naphtha supplies lifted the Asian naphtha complex even higher, with the front month East-West spread nearing a four-year high at the Jan. 29 Asian close, industry sources said.

The Platts-assessed front-month February East-West spread, the premium that CFR Japan naphtha cargo swap commands over the CIF NWE equivalent, jumped to $40/mt at the Asian close on Jan. 29, up 18% from $34/mt on Jan. 26, S&P Global Commodity Insights data showed.

The spread was last higher on April 30, 2020, when it stood at $50/mt, marking a near four-year high.

The surge in the spread came after Trafigura's Marlin Luanda tanker caught fire after it was struck by a Houthi-launched missile in the Gulf of Aden. The LR2-sized vessel was carrying Russian origin naphtha bound for Singapore.

Trafigura said in a statement Jan. 27 that the fire had been extinguished, adding that "the vessel is now sailing towards a safe harbor."

The CFR Japan naphtha benchmark rose $33.25/mt day on day to a 10-month high of $737/mt at the Jan. 29 close, driven by the bullish naphtha sentiment and a stronger crude complex. The benchmark was last higher on March 7, 2023 at $741.75/mt.

Further tensions in the Middle East arose the following day Jan. 28 when Iranian-backed militants killed three US servicemembers and injured dozens in a drone attack in a US outpost in Jordan, sending signals to ship owners to continue avoiding the Red Sea.

Looking forward, market participants expected Asia's naphtha market to retreat from recent highs and normalize at prevailing levels.

In mid-morning trade Jan. 30, brokers pegged the front-month February-March MOPJ swap time spread at $16.75/mt, dipping $4.25/mt from the near two-year high of $21/mt. The East-West spread likewise retreated to $34/mt.

"I think the market was reacting to news of the Trafigura tanker attack yesterday," a Singapore-based trader said Jan. 30. "From here on out if things normalize, it should stay around these levels I think."

Impact from attack on Russian facilities

Meanwhile, fire outbreaks caused by suspected Ukrainian drone attacks at Novatek's Ust-Luga terminal and Rosneft's 240,000 b/d Tuapse refinery in Russia during the week ended Jan. 26 capped outflows of naphtha from the country.

The second largest of Rosneft's 11 Russian refineries, Tuapse is a major export hub for refinery feedstocks, including high sulfur gasoil, naphtha, straight run fuel oil and VGO.

The Tuapse outage could further tighten the naphtha market after the loss of exports from the Novatek processing plant. According to local media and market sources, the repairs at the Novatek plant could take around two months.

Novatek exports about 110,000 b/d of oil products, most of which are naphtha, from the terminal. Refiners in Singapore, Turkey, Taiwan and China are among its biggest buyers, data from S&P Global Commodities at Sea showed.

"That refinery supplied a lot of naphtha to the Far East. And so there's concern that flow may be gone," Gary Simmons, chief operating officer at Valero, said in an earnings call Jan. 25.

The series of disruptions, which saw lower exports from Russia and delayed arrivals from the West kept naphtha supplies at bay, spurring on the bull run.

Reflecting the strength in the complex, the front month Mean of Platts Japan naphtha swap time spread was assessed at $21/mt on Jan. 29, widening $5.25/mt from the previous Asian close on Jan. 26. This was the highest the time spread has been since it was assessed at $21.50/mt on March 18, 2022.

Similarly, the CFR Japan naphtha physical crack against front month ICE Brent crude futures surged $20.275/mt, or 22.92%, to $108.725/mt in a single session on Jan. 29.

"As of now, it is estimated that 400,000 mt of naphtha has been delayed so far," a Northeast Asian end-user said Jan. 29.

The delayed arrivals combined with the loss in naphtha exports from Russia pushed Platts CFR Japan naphtha premium to its highest in 22 months, at $30.50/mt on Jan. 29, S&P Global data showed. The cash differential was last higher on March 14, 2022 at $34.50/mt.