Overview

Market Updates

What is Open Specification Naphtha?

Open Specification Naphtha (OSN) is one of the most active forward market of petroleum products that is based on the formulated Terms and Conditions of Naphtha Forward Contract CFR Japan or South Korea. OSN is mainly traded for the purpose of hedging the risk of wet naphtha delivery. The transacted volume is estimated to be 60 million tons per annum.

In Far East Asia, most wet contracts refer to the prices transacted in the OSN market as the established price quotation.

Trading Open Specification Naphtha

Products:

• Naphtha or condensate

Contract Size:

• 25,000 Metric Ton +/- 10pct

Specifications and other terms are specified in the standard contract.

Categories of trading OSN include:

• Swaps (MOPJ, MOPS, MOPAG, NWE Naphtha)
  A Swap is a custom-tailored and individually negotiated transaction designed to manage financial risk usually over a period of months or years. It is an agreement whereby a floating price is exchanged for a fixed price over a specified period like day to quarter range. An important hedging tool, the agreement defines the volume, duration and fixed reference price. Differences are settled in cash for specific periods – monthly, quarterly or six-monthly. A Swap is settled by cash without physical delivery.

  The benchmark commonly used for floating prices are the mean of Platts’ Singapore (MOPS) prices and the mean of Platt’s quotation c+f Japan (MOPJ). The former is called MOPS swap or Fob Singapore swap and the latter MOPJ Swap or Japan Swap. FOB A/G swap uses Platt’s FOB AG quotation but it is not liquid. FOB AG swap is one of the hedging tools used for physical cargo lifter from Middle East. Alternatively, freight swaps can also be used for hedging.

• Inter-month Spreads
  This hedging instrument enables traders to lock in the price differentials between the same product but different months.

• East-west Spreads
  An Inter-month Spread except that the commodities exchanged (bought/sold) must be between a product from the East and a product from the West (NWE naphtha swap).

• Crack Spreads
  Crack Spreads are the simultaneous deal of purchase or sale of Crude Oil against the sale or purchase of products. These spread differentials, which represent refining margins, are normally quoted in dollars per barrel by converting the product prices into dollars per barrel and subtracting the crude oil price. Crack spreads are designed to hedge between crude and products and is extremely popular among refiners who use them to protect their refining margin.

• Inter-product Spread
  This hedging instrument enables traders to lock in the price differentials between products and commodities.

• MOPJ-Link
  MPOJ-Link is a transaction of outright Open Spec Naphtha at floating price of Platt’s quotation during specified periods. Similar to physical transactions, the periods normally cover a one day to one week average. This is used for hedging of the physical price exposure. Occasionally this instrument helps players to do an outright deal by increasing the volume of exposure during certain periods.

[back to top]