Record high naphtha cracks are pushing up spot differentials for light sweet and sour crudes in Asia and the Middle East, with premiums for naphtha-rich grades from Australia, Abu Dhabi and Russia touching multi-year highs.
Regional condensates continue to outperform in the broader Asian crude complex with premiums for February-loading cargoes of Australia's North West Shelf condensate and Qatar's Deodorized field condensate more than $3/b higher than for January-loading cargoes.
Australia's NWS condensate premium against Platts Asian Dated Brent set a new record high of $4.60/b Monday, beating the previous peak of $3.60/b in February 2009. Platts assessed Qatar's DFC at a premium of $6.70/b to Platts front-month Dubai crude assessments Monday, the highest since posting a $7/b premium in June 2008.
"It looks like buyers are willing to pay up and grab anything that yields decent amount of naphtha ... light grades are [very strong] and [naphtha] crack is too good," said a regional sweet crude trader.
Spot differentials for light sour Middle Eastern grades such as Murban, Das Blend and Qatar Land have also rallied this month on the back of tight supply and strong naphtha cracks.
Besides strong Asian demand, fundamentals for Middle East crude this month are underpinned by expectations of reduced Murban and Das Blend supplies as well as Dubai's deep discount to Brent that is limiting arbitrage inflows of rival barrels into the region.
Platts assessed spot premiums for Murban at $1.05/b this month for the first time since September 2013.
Premiums paid for Far East Russian crudes also hit multi-year highs this month as North Asian end-users showed strong support for light distillate-rich short haul crude cargoes.
Russia's Sakhalin Blend was assessed at a premium of $6.10/b to Platts front-month Dubai crude oil assessments, on a CFR Northeast Asia basis, its highest level since February 14, 2014, and light sweet Sokol crude was last assessed at a premium of $5.90/b to the February average of first-line Dubai and Oman assessments Monday, its highest level since July 24, 2014.
TIGHT FEBRUARY SUPPLY
Spot premiums for regional grades could continue to inch higher as sellers take advantage of strong demand amid a decline in supplies, traders said.
A total of 1.95 million barrels of Australia's North West Shelf condensate is expected to be exported over February, down 25% from January's volume of 2.6 million barrels. The loading program for the month consists of three 650,000-barrel lots: Shell sold one cargo loading over February 16-20, Australian oil and mining giant BHP Billiton sold the second cargo loading over February 16-20, and Woodside Petroleum sold the third loading February 24-28.
Qatari low sulfur condensate was again absent in Tasweeq's latest monthly spot tender, adding to concerns over tightening supply of the ultra-light crudes. Similar to last month, there were no LSC barrels offered in the monthly tender due to a production issue with the gas trains, traders said.
It was uncertain when production would resume. Tasweeq usually sells one to two cargoes of LSC, which are typically picked up by North Asian buyers via tender in 500,000-barrel cargoes.
Adding to the supply tightness was the lack of East Timor's Kitan condensate. The grade will no longer be available in the spot market as the ultra-light oil field reached the end of its normal life, market sources said Monday. "[It reached the end of field life] faster than expected," a source close to the matter said.
NAPHTHA CRACK RALLY
Naphtha cracks continue to hover around multi-year highs. The second-month naphtha to Dubai swap crack crossed the $10/b mark to hit $10.29/b Monday, the highest level since $10.52/b on May 15, 2007, Platts data showed.
The crack value averaged $7.65/b so far this month, compared with $4.23/b in November and minus $5.82/b December 2014.
Traders expect strength of the regional light crude grades to depend on where naphtha cracks were headed, but it was too soon to tell.
"It's hard to say if the naphtha cracks will be strong going into March, it's a function of the flat price and the cracks," said a Singapore-based crude trader.
For now, strong margins are giving condensate splitters and refineries the incentive to keep run rates high, although the start of the refinery turnaround season in March may put a lid on the bullish sentiment.
