China’s Naphtha Market Braces for Further Challenges as Russian Oil Waivers Expand
While crackers across Asia are rushing to secure Russian cargoes following the Trump administration’s expansion of the Russian oil sanction waiver on Friday, naphtha-fed crackers in China could face greater obstacles, as the once-discounted cargoes become more elusive.
The authorization granted by the U.S. will allow vessels carrying Russian crude and petroleum products already in transit to complete sales and offloading between March 12 and April 11, expanding an earlier India-specific waiver.
China has long reaped gains from Russian oil sanctions, as Western markets shunned Russian-origin cargoes, while recent war-related supply bottlenecks have further cemented Russian supply as a lifeline for some feedstock-hungry crackers in China, according to sources.
The recent temporary lifting of oil sanctions, however, will draw more buyers to Russian barrels and thus increase the competition faced by Chinese crackers. This has made it more difficult to secure cargoes in an already-squeezed feedstock market suffering from the Middle East fallout.
“We were told by a Russian producer that they have limited availability,” said a producer source in South Korea who connected with their Russian counterpart on Friday.
“We can barely buy much from Russia now,” a Chinese oil refiner source said, noting the minimal cargoes left in the spot market.
Russian naphtha cargoes in transit are estimated at 3.57 million metric tons and 1.21 million mt in March and April, respectively, with the majority heading to Singapore. Only a smaller fraction of roughly 6%-7% is heading to China, shipping data from Vortexa shows.
As such, independent crackers — which usually rely on imports or external refineries for feedstock — can maintain their inventories only until April, according to sources.
Overall, crackers in China have scaled back operations by as much as five percentage points since the outbreak of U.S.-led strikes against Iran on Feb. 28, with run rates currently averaging 82%, analysts estimated.
Compounding the market woes is market chatter circulating in China that state-owned refineries plan to hike middle distillate output and reduce naphtha production, reversing the previous trend to shift oil demand from transport fuels to petrochemicals. This is reportedly in response to the country’s intention to prioritize meeting domestic household demand, as transport fuels typically serve a more critical role than petrochemicals.
“Nothing has been (confirmed) yet, but if any shortage occurs in diesel or gasoline supply, refineries will certainly pivot (and) hike middle distillate yields,” said a China-based source.
—Reporting by Yiwen Ju, yju@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com