September 17, 2019 / 12:19 PM / a month ago

Asia's gasoline, naphtha cracks surge on Saudi attacks

SINGAPORE (Reuters) - Asia’s gasoline margin rose nearly 10% to $9.56 a barrel on Tuesday, the highest since 2018, while the naphtha crack surged about 95% to its highest since March at $64.70 a tonne following the attacks on Saudi oil facilities.

The weekend attack on oil processing plants at Abqaiq and Khurais knocked out half of the oil output from the world’s top exporter and it could take months for production to return to normal.

“Lesser crude oil means lower (refinery) run rates. (This) means lesser products,” a light distillates industry source explained the jump in cracks.

It was unclear how much of gasoline and naphtha supplies would be wiped out but this comes at a time when gasoline demand in pockets of Asia has been stronger than usual.

(Graphic: Asia refining margins for gasoline & naphtha push to multi-month highs after Saudi strikes, here)

India for instance has been relying on imports to fill a supply void as its refineries undergo maintenance and upgrading works to prepare for cleaner fuels in 2020.

Indonesia had recently been buying more to cater to demand this month as its Cilacap refinery had a scheduled maintenance.

Japan’s Cosmo has also been importing an average of two medium-range vessel size cargoes since July due to planned maintenance, trading sources said although this could not be directly confirmed.

ASIA PETCHEM DEPENDS ON HEAVILY ON NAPHTHA

As for naphtha, Asia is structurally short of the fuel and Saudi Aramco is the third largest Middle Eastern supplier to the region after the United Emirates Arab (UAE) and Qatar.

Between January and August, Saudi Arabia exported a monthly average of about 327,000 tonnes of naphtha versus UAE at slightly above 1 million tonnes and Qatar at nearly 760,000 tonnes, data from Refinitiv Oil Research showed.

But most of naphtha from Middle Eastern suppliers are tied-up in term contracts, the sources said.

“There’s some (supply) length in naphtha but I think given the situation, sellers will give minimum nominations to buyers,” said a naphtha buyer.

Typically, sellers have the option of supplying at least 5-10% above a contracted volume to a buyer or at least 5-10% below, depending on market fundamentals.

If sellers start supplying lower volumes, buyers would need more spot cargoes to fill the gap.

“I used to tell people not to trash naphtha. Now everyone wants naphtha,” said a source who used to sell naphtha to Asian buyers.

(This version of the story corrects Cosmo RIC)

Reporting by Seng Li Peng; editing by David Evans

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