Naphtha fixtures are increasing on the Mediterranean to Asia arbitrage route as a supply glut in Europe has lowered the benchmark European naphtha price, sources said Wednesday.
"Fixtures to Asia make sense given the length in Europe," a petrochemicals industry source said Wednesday.
According to shipping sources, two clean tankers were heard fixed on the Med-Japan route Wednesday morning: the Ocean Odyssey, loading 75,000 mt naphtha September 27 and chartered by Shell; and the LR2 Polaris, loading 75,000 mt naphtha October 3 and chartered by BP.
Shell was not immediately available to comment and BP declined to comment.
This takes the total September loading fixtures so far from the Mediterranean to Asia to around 385,000 mt, down from around 800,000 mt in August, shipping sources said.
The recent rise in fixtures follows a sharp drop in the CIF NWE naphtha outright price and a recovery in the Mean of Platts Japan benchmark, sources said.
At Tuesday's European close the CIF NWE outright price fell $34.75/mt from Monday to be assessed at $944.25/mt, a more than one-month low, Platts data shows
The fall was attributed to rising length in Europe, with an unsold Russian, Murmansk origin cargo on offer for September delivery in the Amsterdam-Rotterdam-Antwerp trading hub, a petrochemical source said.
As a result, the East-West spread -- the premium of the CFR Japan October naphtha swap versus the equivalent CIF NWE swap -- was heard rising Wednesday morning to $5/mt, up $1.50/mt from Tuesday, traders said.
Currently, the Med-Asia naphtha arbitrage represents a "flat to marginal profit," a trader said, looking at the CIF NWE October swap against the CFR Japan outright price 30-45 days forward and discounting freight costs from the UKC-Med and Med-Japan.
"It depends on the premium you will actually sell for in Asia," he added. Premiums in Asia for open specification naphtha are currently pegged at $11/mt for first-half November delivery, traders said Wednesday.
HIGHER ASIAN NAPHTHA TOLERANCE OPTIONS DRIVING EUROPEAN IMPORTS
A second trader said another factor driving traders to fix arbitrage cargoes from Europe to Asia was the higher tolerance options in the east. In oil trading, tolerance options represent the maximum or minimum cargo volume a seller can deliver to a buyer.
"If you are short at $1,001/mt for example, with the crude here you would maximize your sale volume [in Asia]."
In Asia, Platts CFR Japan naphtha open specification contracts allow for an optionality of 5,000 mt or 25,000 mt plus or minus 10%.
By comparison, in Europe, Platts CIF NWE naphtha open specification contracts allow for an optionality of 2,500 mt or 12,500 mt plus or minus 10%.
