WTI Above $107 Raises Pressure on Asian Naphtha Buyers

• WTI crude climbed 2.18 percent to 107.72 dollars per barrel
• Brent crude held above 109 dollars per barrel
• Strait of Hormuz remains effectively closed for large vessels
• Asia normally takes 60 percent of seaborne naphtha imports via Hormuz
• IEA projects refinery throughputs to plunge 4.5 million bpd in Q2

Asian naphtha values came under renewed upward pressure as WTI crude climbed 2.18 percent recently to 107.72 dollars per barrel and Brent traded above 109 dollars. The Strait of Hormuz remained effectively closed for large container and tanker traffic, with only a handful of vessels managing to navigate the chokepoint over the past few sessions. The International Energy Agency has warned that the oil market could remain materially undersupplied through October even if a ceasefire materializes in June, with refinery crude throughputs projected to plunge 4.5 million barrels per day in the second quarter to 78.7 million barrels.

The naphtha implications for Asian petrochemical procurement are direct. Over 60 percent of Asia's seaborne naphtha imports normally pass through the Strait of Hormuz, and by 2025 more than 54 percent of global naphtha shipments to Asia transited the waterway. With Iranian, Saudi, Kuwaiti and UAE supply throttled, South Korean cracker operators have cut average operating rates to near 66 percent through March, and Japanese and Indian crackers have followed in trimming runs. The disruption is rippling through ethylene, propylene, benzene, toluene and xylene spot markets, with European benzene, butadiene, methanol and propylene prices now pulling back from peaks even as the supply shortage remains acute.

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The cost transmission to downstream chemicals has been uneven. US ethane to ethylene cracking margins jumped from 7 cents per pound a week before the conflict to 23 cents per pound, with the ethylene to polyethylene spread widening from 20 cents to over 45 cents per pound. Naphtha-cracker operators in Asia have not enjoyed similar margin expansion because feedstock costs have ramped in parallel with derivative prices. Chinese coal-based and CTO operators have captured the lion's share of the Asian arbitrage gain, while Japanese, Korean and Taiwanese naphtha cracker operators have been forced into rate cuts.

Procurement teams across olefins, aromatics, fibers and solvents should expect another round of cost pass-through into June and July contracts. The 100 dollar per barrel crude level has now held for over two months and the IEA's projection of continued undersupply into October implies elevated naphtha feedstock costs for the balance of the year. Buyers should accelerate forward cover on key derivative products, particularly butadiene-based synthetic rubber feedstocks for tire and glove production, MEG and PTA for polyester chains, and benzene-cumene-phenol for engineering polymers. Index-linked contract terms tied to naphtha or crude should be stress-tested against an extended 100 to 110 dollar per barrel range.