In Oil & Companies News 11/02/2016
A sharp narrowing of light distillate margins and the resumption of Iran’s condensate exports could weigh heavily on naphtha-rich grades in Asia this month, but Australia’s North West Shelf condensate may outperform the market on tight April supply and strong end-user preference, participants said Wednesday.
Price differentials for Qatari condensates fell sharply in recent weeks, as ample Iranian supplies start entering the market after the lifting of sanctions against Tehran in January. The latest downtrend in naphtha and gasoline crack values dampened demand for Indonesia’s Senipah condensate for loading in March.
However, regional traders said strong demand for low sulfur condensate feedstocks from Asian end-users coupled with a smaller April loading program for the NWS condensate suggest suppliers of the Australian grade will likely fetch healthy premiums for their April-loading cargoes. Three 650,000-barrel cargoes of Australian NWS condensate are scheduled for export in April, compared with four cargoes in March, accounting for a decrease of 40% in exports month on month, sources with direct knowledge of the preliminary April-loading program told Platts.
BP holds one cargo for loading over March 3-7, while Anglo-Australian mining giant BHP Billiton holds the second cargo for loading over March 10-14, sources said.
Woodside Petroleum, operator of the North West Shelf project, holds one cargo for loading over April 4-8, and Shell has the second cargo for loading over April 12-16. BP holds the third cargo for loading April 21-25.
The smaller monthly program is largely due to the LNG field maintenance at Australia’s North West Shelf project scheduled in April, the sources said, adding that some of the project’s offshore production units may require regular checkups following the recent cyclone season in Western Australia. “There will be some maintenance going on there … it’s nothing major but production is to be affected,” said a Singapore-based trader.
ASIA CONDENSATE SENTIMENT BEARISH
Market participants have a bearish outlook for regional condensates, given the steep decline in naphtha crack spreads and the return of Iranian South Pars condensate in the spot market.
The second-month naphtha to Dubai swap crack crossed the $10/b mark to $10.67/b on January 5, the highest level since $11.08/b on December 1, 2004, Platts data showed. However, the crack value took a sharp downturn since, hitting a near three-month low of $2.37/b last week.
“Regional [condensates] look expensive to be fair and naphtha cracks have crashed now,” a North Asia-based condensates trader said. Traders said some cargoes of Iranian South Pars condensate could have been offered and sold to term buyers on spot basis at discounts below $2/b to Dubai.
Sources said Qatar’s Deodorized field condensate and low sulfur condensate would bear the biggest brunt of Iran’s hefty supply, expecting spot differentials for both DFC and LSC to slide as much as $5/b from last month.
“[The Iranians are] selling [South Pars condensate] very cheap to the market because they want to clear their inventory [that has been building up],” said a regional condensate trader, adding that Qatar International Petroleum Marketing Co. Ltd., or Tasweeq, will likely struggle to cope with growing price competition.
“Until Iran can clear those 40 million barrels of condensate stockpiles, DFC and LSC premiums will be hard hit,” said a trader with South Korean refining company.
NWS PREMIUM SEEN SUPPORTED
But market participants were generally less bearish about Australian ultra-light crude. Three regional condensate traders surveyed by Platts said they expect April-loading NWS condensate cargoes to trade at premiums between $3/b and $5/b to Dated Brent.
Two traders, however, expected the spot differential to fall below Dated Brent plus $2.50/b, while another two predicted the premium to rise above $5/b this month.
Last month, the NWS condensate premium against Platts Asian Dated Brent set a new record high of $5/b. Premiums for March-loading NWS condensate held firm last month, despite the sharp pullback in light distillate cracks in January, as competition among regional buyers to secure high quality, low sulfur condensate supply continued to intensify since the restart of Indonesian Trans Pacific Petrochemical Indotama’s condensate splitter in the second-half of October 2015. In its latest tender, Indonesia’s Pertamina was heard to have bought a cargo of the Australian condensate for March 1-15 delivery to its TPPI refinery in Tuban, East Java.
Sources said the seller of the Australian ultra-light grade could be BP, which was heard to have received a premium of around $6.50-$6.90/b to Dated Brent on a CFR basis.
“Qatari [condensate] premiums may have crashed but requirements for sweet condensates remain solid,” said a second Singapore-based condensate trader.
“Even if [Tasweeq’s] DFC and LSC are considered cheaper, refiners would prefer to take higher-quality grades like North West Shelf. TPPI is still short and [Thailand’s] PTT has been actively seeking,” the trader added.
Trader sources also indicated that regional end-users tend to show their preference for sweet Australian condensates than sour ultra-light grades produced in the Middle East during spring and summer.
“Demand for sour condensates, like Iran’s South Pars, generally lags in warmer months … its high Mercaptan and sulfur contents present serious odor problem in tankage,” said a third Singapore-based trader.
