5.1 Crude/Brent
The global crude market is currently grappling with the most significant supply disruption in history following the effective closure of the Strait of Hormuz during the ongoing US-Israel war with Iran (IEA, Bloomberg). Brent oil prices have fluctuated violently, recently surging past the $100/bbl mark despite a historic announcement from the International Energy Agency (IEA) regarding an emergency oil reserve release (MUFG, Argus).
The IEA has agreed to discharge 400 million barrels from strategic reserves—the largest release ever—to contain price spikes, with the US contributing 172 million barrels over 120 days (MUFG, Bloomberg). Other major contributors include Japan with 80 million barrels, South Korea with 22.5 million, Germany with 19.5 million, France with 15 million, and the UK with 13.5 million (MUFG, Argus). Analysts warn that even this record release may be insufficient as it covers only about four days of global demand and is dwarfed by the 20 million barrels per day typically transiting the Strait of Hormuz (MUFG, Bloomberg). Security risks escalated further as reports emerged of Iraqi oil ports stopping operations after two tankers, the Zefyros and Safesea Vishnu, were targeted in ship-to-ship transfer zones (MUFG, Argus). Iran's new supreme leader, Mojtaba Khamenei, has vowed to keep the waterway closed, avenging what he termed "Iran's martyrs" (Argus, Bloomberg). In response to supply tightness, the US Treasury issued a second temporary waiver allowing the delivery and sale of Russian-origin crude loaded before March 12 (Argus, Bloomberg). Meanwhile, Brazil's federal government implemented a 12% tax on crude exports to balance extraordinary revenues for producers amid the conflict (Argus). The US administration is also considering a waiver of the Jones Act to allow foreign tankers to supply the East Coast from the Gulf Coast (Argus, Bloomberg). US deepwater sour Mars crude surged by roughly $17.50/bl to near $105/bl, reflecting extreme premiums for medium sour grades (Argus). The IEA estimates that at least 10 million b/d of liquids production has been shut in across Iraq, Qatar, Kuwait, the UAE, and Saudi Arabia (IEA, Argus). Production losses include 8 million b/d of crude and 2 million b/d of condensates and NGLs (IEA). Despite the IEA intervention, Goldman Sachs warns that Brent could exceed its 2008 peak of $147.50/bbl if flows remain depressed through March (Bloomberg). US Energy Secretary Chris Wright noted that while military assets are focused on destroying Iran’s military capability, there is currently no capacity to escort tankers through the Strait (Argus). Consequently, Very Large Crude Carriers (VLCCs) are increasingly diverting toward the Atlantic basin, ballasting to West Africa, Guyana, and Brazil (Argus). This pivot has pushed down VLCC rates in the Atlantic while tonnage remains stranded or underutilized near the Middle East (Argus). Global refinery runs are expected to drop by 4.3 million b/d in March as feedstock and power supply cuts hit Middle Eastern plants (IEA, Argus). The market remains in a state of high alert as the duration of the conflict remains the primary driver of forward price curves (MUFG, Saxo).
5.3 Naphtha
Asian naphtha markets have entered uncharted territory as the prompt East/West spread broke above $130/mt for the March contract (Sparta). Physical premiums in Asia have surged, with the first post-war spot tender clearing above $100/mt to MOPJ for H2 April delivery (Sparta). The closure of the Strait of Hormuz has severed approximately 70% of Asian naphtha supply from the market, leading to a structural feedstock deficit (Sparta, RIM). Open-spec naphtha benchmark prices in Japan rose by $102/mt day-on-day, tracking the sharp rise in Dubai crude values (RIM, Platts). Supply from the Middle East has effectively stopped, prompting end-users in Asia to express extreme concern over feedstock shortages for petrochemical crackers (RIM). In the Middle East, refineries such as Sitra in Bahrain and Ruwais in the UAE have been attacked, and market participants believe it will take significant time to restore production even if shipping resumes (RIM). Logistical disruptions have already led to force majeure declarations at major northeast Asian hubs (Sparta, Argus). Taiwan's Formosa Petrochemical declared force majeure on olefins supply from its Mailiao complex on March 9, citing naphtha delivery delays (Argus). Similarly, South Korea's YNCC and KPIC have reduced operations or declared force majeure due to feedstock depletion (Argus, Platts). Thailand’s SCGC has shut down its ROC naphtha cracker, while Mitsui Chemicals and Mitsubishi Chemical in Japan have significantly reduced operating rates at their respective plants (RIM, Argus). In Europe, naphtha inventories at the ARA hub fell by 3.8% to 630,000t as market participants anticipate tight arrivals in April (Argus). Despite the supply crunch, naphtha's current high price relative to propane may reduce its attractiveness for cracking, though alternative supplies from the Atlantic Basin face a structural ceiling and cannot fully offset Middle Eastern losses (Sparta, Argus). Heavy grade naphtha prices on a CFR Japan basis were stable at a premium of $80-$90/mt to Japan quotations (RIM). In the US, the surge in oil and gas futures has also supported downstream feedstock values (Platts). The collapse in regional naphtha availability has forced several state-owned refineries in China to adjust run rates lower since last week (Argus). Market participants note that April and May coverage remains the primary concern for Asian buyers (Platts).
5.5 LPG/NGLs
The LPG market is experiencing severe strain as the Middle East conflict disrupts exports from key hubs like Ras Tanura and Juaymah (RIM). Propane and butane prices for March loading in the Middle East strengthened by $2/mt, supported by an upward revision of the April Contract Price (CP) forecast to $578/mt for propane (RIM). Cargo movements from the region are largely halted, with only limited volumes exported from Yanbu, which cannot offset the loss of Strait of Hormuz traffic (RIM). In Asia, refrigerated cargo prices for April delivery to Japan and China surged by $65/mt, reaching $844-$854/mt for second-half April delivery (RIM). Physical premiums for propane in East China reached $105-$110/mt to CFR Far East quotations (RIM). Demand remains high despite surging costs, with Hanwha TotalEnergies and Osaka Gas issuing buy tenders for April and May delivery (RIM). However, high spot prices have forced some Chinese Propane Dehydrogenation (PDH) plants to lower run rates or plan early maintenance (RIM). India’s LPG supply chain is reportedly under severe strain, with restaurant closures and panic buying in major cities (Sparta). In the US, FOB Gulf Coast propane prices jumped by over $20/mt, pulled up by stronger crude futures, though premiums to Mont Belvieu remained stable (RIM). US propane stocks as of March 6 stood at 71.7 million barrels, up 58.3% year-on-year, though levels on the Gulf Coast fell slightly from the previous week (RIM). Arbitrage from the US to Japan remains open only if premiums to Mont Belvieu stay below 56.62 cts/gallon, but foggy weather and Panama Canal congestion are delaying vessel arrivals in the Far East (RIM). Consequently, more players are moving to resell US-origin cargoes on an FOB basis (RIM). VLGC freight rates have been mixed, with Middle East to Far East rates falling to $99-$101/mt due to bunker cost declines, while USGC loading rates appreciated slightly (RIM). Canadian propane prices also rose by 1.875 cents/gal, tracking the broader energy rally (Platts). The loss of Middle Eastern LPG and naphtha has forced regional petrochemical plants to slash production significantly (IEA). Market analysts note that the current supply gap is simply too large to be replaced by alternative routes (MUFG).
5.7 Gasoline/Mogas
US Gulf Coast gasoline prices reached their highest level in over two years as the Middle East conflict triggered a spike in global export demand (Argus). Conventional 87 finished gasoline hit $2.895/USG, up nearly 43 cents on the week (Argus). The Gulf Coast exported a record 1 million b/d in the first week of March, a 39.6% increase compared to the same week last year, as international buyers scrambled to replace barrels lost from the Strait of Hormuz (Argus). Regional inventories have fallen to three-month lows of 85.1 million barrels, and further declines are expected ahead of the summer driving season (Argus). In Asia, the Chinese government has reportedly instructed refiners to halt all exports of transportation fuels, including gasoline, with immediate effect (Argus, Bloomberg). This directive has sharply widened Singapore gasoline market structures into backwardation, with the Singapore 92R April/May swap trading as high as $12/bl (Argus). Asian refiners are prioritizing domestic supply and avoiding international sales, which has further tightened regional fundamentals (RIM). In Japan, the government has announced new subsidies to keep retail gasoline prices around ¥170/litre, following a ¥26/l increase in wholesale prices (Argus). Australia has also suspended its recently introduced 10ppm sulfur standard for gasoline to boost domestic supply from the Lytton refinery (Argus). California refiners ramped up CARBOB gasoline production by 5.1% to 645,000 b/d to meet surging prices, even as state crude inventories slipped to a three-year low (Argus). European gasoline stocks at the ARA hub fell by 2.7% to 1.36 million tons (Argus). Despite being a net exporter, Europe faces pressure as stronger cracks pull volumes toward Asia (Platts). US gasoline exports to Mexico are scheduled to double this week to over 511,000 b/d to compensate for Mexican refining shortcomings (Platts). In the US Midwest, Chicago CBOB pipeline assessments were heard at a 37-cent discount to NYMEX April RBOB futures (Platts). The broader gasoline market remains supported by the surge in NYMEX RBOB futures, which settled at 296.46 cents/gal on March 12 (Platts).
5.8 Petrochemicals
The Asian petrochemical complex is facing severe disruption with widespread force majeure declarations and significant production cuts across major hubs (Sparta, RIM). Taiwanese producer Formosa Petrochemical declared force majeure on olefins from its Mailiao complex on March 9, reducing operations to minimum capacity due to naphtha shortages (Argus). Formosa's affiliated aromatics line is also expected to cut output by at least 10% (Argus). In Japan, Mitsui Chemicals and Mitsubishi Chemical have reduced operating rates at their naphtha-fed crackers, while Idemitsu has warned of potential ethylene halts (Argus). Asahi Kasei Mitsubishi Chemical Ethylene Corp (AMEC) also started production cuts at its Mizushima plant to avoid a complete shutdown (RIM). South Korea’s KPIC reduced cracker runs in Onsan to 66%, and YNCC remains under force majeure (Platts, Argus). In Southeast Asia, polymer supply is extremely tight, exacerbated by a technical fault at Malaysia’s PRefChem which forced a 10-day shutdown of its cracker and all downstream polymer units (Argus). Singapore’s TPC declared force majeure on March 9 after its upstream supplier, PCS, halted olefins deliveries (Argus). Lotte Chemical Indonesia has issued a potential force majeure notice affecting its entire production chain, including BTX and polypropylene (Platts, RIM). Consequently, polyolefin prices have surged; Linear Low Density Polyethylene (LLDPE) prices strengthened by $70/mt to over $1,100/mt on a CFR Southeast Asia basis (RIM). TotalEnergies declared force majeure on LDPE, LLDPE, and HDPE shipped from Qatar (RIM). Ethylene prices in northeast Asia rose by $425/mt day-on-day to $1,400-$1,450/mt due to the supply crunch (RIM). However, some Chinese makers like Satellite Petrochemical and Yulong Petrochemical remain less affected as they use land-based feedstocks like ethane or Russian crude (RIM). Benzene and paraxylene prices rose tracking upstream strength, with Asian paraxylene markers up $89/mt day-on-day (Platts). Paraxylene operating rates in China fell to 81%, and traders report that rate cuts are now a functional fact across the industry (Platts). Toluene prices also rose by $40/mt, though high prices have discouraged buying for gasoline blending (Platts). The overall petrochemical sector remains largely inoperative or at reduced capacity across Asia as the feedstock deficit persists (Sparta).
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