The arbitrage is technically closed — not because the spread is too thin. The October average East–West spread was about $65/t, ranging $45–120/t, well above the $20–45/t that held for most of 2025. In March that spread comfortably covered the cost of moving cargo from the Mediterranean to Japan, and Western barrels flowed east freely. Since then freight has risen far faster than the spread has widened: LR2 rates on the Mediterranean–Japan route have come off around a quarter from their mid-October peak, yet on a per-tonne basis still sit well above the spread. The scale comparison makes the point — the swing in LR2 Mediterranean–Japan freight during October was $100/t, while the monthly average spread moved by only about $12/t. What decides where Asian naphtha comes from today is freight, not the spread.

Both cargo flow and vessel mix are being restructured. On flows: Western loadings were 0.9 Mt in October (the year's low, roughly 20% of the total) while Eastern loadings recovered to 3.9 Mt, of which 2.9 Mt moved through the Gulf of Oman via ship-to-ship transfer, with direct loadings from ports inside the Strait amounting to just 0.09 Mt. On vessel mix: of 24 Western cargoes in October, LR2s carried only two against six in January, while MRs doubled from ten to 21 — concentrated in the Mediterranean, which sent 15 MR cargoes to Asia in October against just one in January, with the US Gulf managing only two. The same downsizing is visible on Middle East naphtha: MRs carried 22 cargoes in October against 15 in January, while LR2s fell from 31 to ten. The capacity constraint is structural: since the conflict began, many LR2s have switched to dirty petroleum products, and more LR2s are positioned East than West, mostly running clean-product voyages from the Middle East and India westward. Shorter Eastern hauls have not brought cheaper freight — Persian Gulf–Japan LR1/LR2 rates have more than doubled since July and India West Coast–Japan LR1/MR rates more than doubled since August, with vessel attacks and Gulf of Oman congestion keeping every route into Asia firm.

The cracking economics still do not add up. On feedstock: naphtha rose $33 to $1,082/t CFR Japan on 30 October. On products: ethylene CFR Northeast Asia was quoted at $1,230/t on 30 October (flat), with CFR Southeast Asia at $1,170/t; at the 28 October close, CFR Northeast Asia stood at $1,210/t (+5.22% on the week), CFR Southeast Asia $1,150/t (+3.6%) and CFR China $1,200/t (+4.8%). Ethylene has failed to keep pace with naphtha, pushing the ethylene–naphtha spread back below its 2025 average in October, while benzene and paraxylene (PX) spreads sit close to breakeven. The feedstock-switching window has closed too: the propane–naphtha spread averaged about –$160/t in April, when propane was the cheaper feedstock, but has since narrowed to roughly zero with both products around $1,040/t in late October — removing most of the incentive to switch and restoring naphtha as the default Asian cracker feedstock. Weak downstream petrochemical margins and the continuing rationalisation of cracking capacity cap any demand recovery.

What it means for SNSUC. Four actionable reads. First, for any Japan-bound voyage quotation, freight must be listed separately from cargo price with a short validity — a $100/t swing in LR2 rates within a single month can wipe out the entire spread, so fixing freight for a long period means absorbing all the volatility yourself. Second, STS transfer is now the mainstream delivery method (2.9 Mt in a single month through the Gulf of Oman), which means load port, routing tier and transfer method all belong in the contract and the document chain; writing only 'Middle East naphtha' leaves ambiguity across bills of lading, insurance and inspection — and the same discipline applies to the Japan-bound delivery terms of every category we can touch. Third, for our reachable categories (LNG/LPG, base oils SN150/SN500, paraffin wax, lubricants), naphtha is not a direct feedstock and pass-through is limited; what genuinely rises is the cost of solvents, cleaning and blending steps plus landed freight, which should be quoted as separate line items rather than folded into the goods price — otherwise once freight eases our quote looks expensive and loses the business. Fourth, the window opens both ways: if LR rates keep softening back toward the spread, more Western cargoes may return to December loading programmes and Asian naphtha tightness eases — which argues for caution in signing long-term contracts or building forward inventory at today's highs. Risk note: this is a market observation based on public data and does not constitute investment advice.