Naphtha East-West Spread Widens on Fresh US Sanctions
The naphtha market has rallied with the regional east-west price gap widening to a three-year high, following U.S. sanctions on Russian oil giants Rosneft and Lukoil announced on Wednesday.
The November East-West naphtha spread — an indicator comparing regional economics — surged to $35 per metric ton on Thursday, riding on previous gains, according to OPIS data. The larger spread typically means stronger performance in Asia than its Western counterpart.
The benchmark open specification naphtha price increased 4% to close at $575.50/mt on Thursday, tracking Brent crude’s upward movement. Almost half of Russia’s crude oil exports originate from Rosneft and Lukoil.
The U.S. sanctions, aimed at cutting revenues that Russia needs to fund its war in Ukraine, are estimated to remove about 500,000 mt/month of naphtha supply from the market, according to a Singapore-based analyst.
This will particularly impact Asian markets, which are major recipients of Russian naphtha. According to Vortexa data, Russia exported a total of 13.56 million metric tons of naphtha from January to October, with the largest share going to Taiwan, China (3.62 million mt), followed by mainland China (2.16 million mt) and India (1.52 million mt), as OPIS earlier reported.
With India and Taiwan, China now most likely to stop importing from Russia, “this will make (mainland) China the only landing spot for the sanctioned barrels,” the analyst said. However, India might not commit to the ban and could continue taking in Russian barrels, a second analyst said.
Prior to the sanctions, Taipei had indicated that private producers were prepared to cease Russian naphtha imports next year, in response to a formal request by the European Union.
The cut in Russian supplies is expected to tighten the market in Asia, compelling buyers to turn to the Middle East as an alternative. Additionally, supplies from other Western sources could help fill the gap, at a time when favorable terms have already incentivized traders to shift cargoes eastwards.
“Despite the supply headwinds, colossal cargoes from the west are making their way to Asia,” a South Korea-based producer source said, downplaying the sanctions’ impact.
Drone attacks in late August had taken Novatek’s refining units offline, as OPIS reported earlier. Only one of the three gas-condensate processing units at Ust‑Luga port has resumed operations so far, prompting traders to redirect cargoes from west to east to exploit the regional price gap.
November naphtha arrivals from west to east were estimated at 2.54 million mt, a year-to-date high, rising modestly from 1.95 million mt in October, according to the latest Vortexa data.
Prices have come under pressure following the deluge of barrels from the west. The CFR South Korea naphtha cash differential was assessed at $5.50/mt on Oct.15, down from $7/mt one day before, according to OPIS data.
The first-half December/ H1 January naphtha spread stood at $5/mt on Thursday, little changed from $5.50/mt one day before, according to the latest OPIS data, indicating steady fundamentals in the prompt market.
–Reporting by Yiwen Ju, yju@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com