Cash differentials for November-loading barrels of Asia-Pacific light sweet condensates are likely to be bogged down by lukewarm demand, ample supply and retreating light distillate product cracks, market sources told S&P Global Commodity Insights Sept. 7.
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Register NowDespite market participants seeing firm Chinese demand for the light sweet grades in the previous trading cycle, where they reckoned the surge in buying activities to be due to competitive discounts, traders remained uncertain if the demand is sustainable.
Chinese demand for condensates has been stable due to the steep discounts being offered, but on the whole, demand has been poor, traders said.
In addition, there were expectations of lower demand in the coming weeks following fresh lockdowns in cities such as Chengdu, Shenzhen and Shanghai, according to market sources.
"The Chinese has interests to buy, but [how sustainable the] Chinese demand is, is also a question," said a Singapore-based condensate trader.
Platts assessed the differential for North West Shelf condensate at a discount of $13.05/b to Dated Brent, FOB, on Sept. 6, data from S&P Global showed, as sluggish sentiments spilled over from the previous trading cycle with recent trades concluded at steep discounts to Dated Brent.
Most recently, oil major Shell sold a 650,000-barrel cargo of NWS condensate to China's Unipec for Oct. 6-10 loading at a discount of around high-$12s/b to Dated Brent, FOB, traders said.
Rongsheng, another Chinese buyer, purchased a similar-sized cargo of NWS condensate from Australia's Woodside Energy for Oct. 17-21 loading at a discount of around mid-$12s/b to Dated Brent, FOB, according to traders.
Chinese buyers could continue to buy if condensates remain cheap, according to another Singapore-based condensate trader.
"Condensate differentials [are] low with bad petrochemical margins and gasoline cracks too weak," said a regional crude oil trader.
Light distillate product cracks remained dull, indicating thinning margins, where Platts second-month gasoline and naphtha swap crack versus the Dubai crude swap averaged $3.76/b and minus $20.85/b through Sept. 6, down from August's average of $10.08/b and minus $19.81/b, respectively, S&P Global data showed.
On the supply front, condensate availability remained ample following the emergence of the November-loading program for Australia's flagship NWS condensate.
There will be three 650,000-barrel cargoes of NWS condensate in the November-loading cycle, steady on the month.
Oil major Chevron will hold one cargo for Nov. 7-11 loading, Woodside will hold the second cargo for Nov. 17-21 loading and a joint venture between Mitsubishi Corp. and Mitsui & Co., called MIMI, will hold the final cargo for Nov. 28-Dec. 2 loading.
The last cargo could spill over as part of the December-loading cycle, so supply is no different from normal months of 2-3 cargoes, according to an Australia-based crude oil trader.
NWS condensate typically has an API gravity of 63 with 0.003% sulfur content.
Weak fundamentals for naphtha
Long supply continued to haunt the Asian naphtha market as no sign of demand recovery from naphtha-fed steam crackers in the light of China's lockdowns weighed on the petrochemical sector, and refinery runs remained bolstered by healthy cracking margins for transportation fuels.
Weakness in the overall naphtha market was reflected in the CFR Japan naphtha physical crack against front-month ICE Brent crude futures, which fell into the negative territory in July, and reached an 11-week low of minus $103.55/mt on Aug. 30, S&P Global data showed. The physical crack has remained at a discount, and was last assessed at minus $39.35/mt at the Sept. 6 Asian close.
This kept heavy full-range naphtha competitive as a splitter feedstock, at a time when margins were healthy for paraxylene production.
The key paraxylene CFR Taiwan/China marker versus C+F Japan naphtha spread averaged $380.86/mt in August, over the typical breakeven of around $280-$300/mt, S&P Global data showed. The PX-naphtha spread was last assessed at $391.50/mt on Sept. 6, supporting demand for such cargoes, which were trading at a premium to light naphtha grades used as cracker feedstock.
In the physical market, heavy full-range naphtha was heard bought for H1 October delivery into South Korea, at premiums in the high single-digits to low teens to the Mean of Platts Japan naphtha assessments, CFR.
In comparison, open-specification naphtha with minimum 70% paraffin content, for H1 October delivery, was bought at a discount of $3/mt to MOPJ naphtha assessments, CFR Korea.