Is wider E-W naphtha on lower MEG, Russia supply overdone?

Naphtha supply anxieties from Asian buyers abound as Russia naphtha exports from Ust-Luga remain muted, while heavy turnarounds from refineries in the Middle East loom from this month into early Q4 2025. 

Expectations of curtailed naphtha supply have lifted the East-West naphtha spread to highs last seen in mid-July with the backwardation also hitting levels seen during the same time frame, an indicator of prompt tightness. 

Source: Argus Media prices 

Asia has imported 1.3mbd of naphtha so far this year from the Middle East, roughly 60% of its total; Russia accounts for 12% (~230kbd). Ust-Luga has exported 196kbd of naphtha to Asia so far this year with the largest offtakers being Taiwan and China.  

Asia naphtha imports by destination country (bd) 

From the supply side, it is noteworthy that the Middle East exported a record high amount of naphtha in August, led by Saudi Arabia and Iraq: 1.6mbd (+10kbd y-o-y) ahead of the start of regional refinery maintenance, particularly in the former country.  

There is cause to be fundamentally bullish. Asia steam crackers, heavily reliant on waterborne imports, are coming out of maintenance in October and China’s appetite has been surpassing seasonal highs since May. This implies continued strong demand at least through October, after which the country’s seasonal demand has historically tapered off.  

Source: Vortexa margin calculations based on Argus Media price data 

From an export standpoint, swing supplier Algeria has been directing barrels back into the Med or Northwest Europe amid a stronger y-o-y gasoline-naphtha spread both at the prompt and for next month. August exports into Asia have fallen back to historical norms, so readily available resupply into East of Suez is not a given.  

And, as noted, above, Middle East refinery works are particularly heavy from September through October (roughly 900kbd offline, per Argus). That said, the bulk of these works looks to be located at facilities in Saudi Arabia and Kuwait; UAE and Qatar are the largest naphtha suppliers into Asia for the year-to-date, comprising 41% and 21% of total exports. 

What are the spoilers? 

The question then becomes if there are substantial spoilers to the bullish narrative. It is also worth noting that Asian paper markets, and the East-West spread in particular, have a reputation for getting easily overheated, often resulting in a resounding crash when supplies do return to the market and/or demand disappoints. 

We note that several steam crackers in Asia have been offline since last year and have remained idle because of poor cash cost margins. These shutdowns could extend well into Q4 2025, displacing ~94kbd of naphtha imports, according to our calculations. Naphtha-based steam cracker margins remain below breakeven levels, per our Vortexa forward margins models, well into Q1 2026, discouraging any incremental switching to the heavier feedstock and away from LPG. 

Meanwhile, swing supplies could come from the US, which has been looking for alternative homes for the barrels it once placed in Venezuela (~58kbd on average). Despite the reinstatement of Chevron’s license to produce and export crude, the commensurate exports of US naphtha to Venezuela for use as a diluent for the heavy crude has not recovered.  

Cargo count of Ust-Luga naphtha exports by destination shipping region (no. of vessels) 

The sendout slowdown from Ust-Luga as mentioned above is somewhat of a double-edged sword; the facility exported about 24kbd of naphtha to South America on average last year, and the region could look closer afield to the US for replacement barrels.  

Closer afield, the lingering force majeure at Aster Chemicals’ steam cracker in Singapore has led to spot sales that could last well into month’s end, compounding India’s increasing net length that is directed towards northeast Asia. 

We note the E-W spread is already coming off recent highs and has moved towards the year-ago level of ~$4/t, per Argus prices. This level is likely to hold until further clarity on more steam cracker idlings (due to unprofitable margins) or more spot offers emerge from UAE, Qatar, India and other swing suppliers.