Russian supplies could keep Asian naphtha markets subdued in H1 2023

NEW YORK, Jan 12 (Reuters) – Asian oil markets are likely to remain subdued in the first half of 2023 as the region prepares to shut down Russian supplies after a European ban on Moscow’s oil products was lifted on Feb. started in, and demand from the petrochemical sector remains subdued.

Traders and analysts expect some of the naphtha that Russia can’t sell to Europe after the product ban will reach Asia via Middle Eastern trading hubs. Europe, on the other hand, is likely to get its needs from the Mediterranean region.

Expectations of increased supply from Asia amid shifting trade flows could weigh on naphtha prices and refiner margins. Nafta shares fell 87 percent to $21.13 a ton in 2022 over Brent crude, and the spot price fell 13 percent last year to $647.

Margins and spot prices have risen slightly so far in January, due to weaker crude oil benchmarks, but the increase has been limited by weak petrochemical demand, analysts said.

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Naphtha particles [CHEVRON_LEFT]NAF-SIN-CRK[CHEVRON_RIGHT] in 2022 it dropped to 87 percent

EBBING GOES TO EUROPE

Russia will supply Europe with nearly 3 million tonnes (73,970 bpd) of naphtha in 2022, according to Kpler and FGE data, as the deadline for a production ban approaches and buyers build up stocks. they do

“Make hay as long as the sun shines as long as the feed is unloaded and then find alternative supply after the deadline,” Kpler senior oil analyst Kevin Wright said, explaining the actions.

Russian exports to Europe fell by nearly 500,000 tonnes in January as trade is diverted to avoid imminent sanctions.

According to Kpler and FGE data, Russian exports to Asia will decrease by 868,000 tons to 1.6-1.8 million tons in 2022. Kpler’s Wright hoped that trend would reverse.

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“I expect Russian naphtha exports to Asia to increase strongly in 2023, especially to India,” Wright said, with buyers drawn by heavy discounts on the product.

Russian naphtha exports rose in Q4 2022 ahead of EU ban on February 5

CRACKER MARGINS AND RUN RATES

In terms of margins, analysts at Wood Mackenzie, FGE and Energy Aspects expect them to remain weak in the first half of the year after posting an annual loss last year due to weak Chinese demand due to COVID-related restrictions. .

“China’s domestic demand is likely to be lower than in previous years as COVID appears to be reoccurring there, especially now that there are no restrictions in place, and that could in turn hurt demand for naphtha imports,” Kpler’s Wright said. .

Adding to the demand constraints, fears of a global growth slowdown will further weigh on oil prices.

Alan Gelder, vice president, refining, chemicals and oil markets at Wood Mackenzie, said: “Singapore crude oil prices are at their weakest level in the first quarter of 2023 and then slow. they are coming back slowly.”

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Meanwhile, South Korea’s LG Chem and Taiwan’s Formosa Petrochemical ( 6505.TW ) extended shutdowns in September to October last year in response to negative oil margins, while others in the region cut operating rates. , a trend that may continue at first. mid 2023, analysts and traders said.

Formosa does not see “a sign of recovery in demand” in the first half of 2023 due to inflationary pressures in major economies, company spokesman KY Lin told Reuters.

“There is an expectation in the market that inflation can slow down in the second half of the year, demand will only increase then,” he added.

Mohi Narayan report; Editing by Florence Tan and Simon Cameron-Moore

Our Standards: The Thomson Reuters Trust Principles.

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