Cheaper European components stimulate T/A arb outlook for summer, while AG barrels continue to lose competitiveness in foreign markets

28 May 2024 Time to read:  minutes

Gasoline Demo

Once again, the gasoline market hits new lows this week, and after the accumulated drop in May, we have gone from reaching historical highs in June cracks on both sides of Suez to values below the historical average – in a move which comes as no surprise to those who have been reading this commentary for a while. 

Despite lower EBOB levels impacting the European market, a significant correction in blending components stimulated 10 blending in the region. As we pointed out last week, there is a lack of alternatives for European blending given a closed T/A arbitrage and a gas-naphtha spread narrowing quickly. 


European market big correction since middle of April, felt on crack, spreads and gas-nap. (Sparta Live Curves)


Source: Live Curves: Blending components falling sharply in Europe despite heavy naphtha keeps showing a tight market. (Sparta Live Curves)

With the E10 blending margin open since last Thursday, the underlying EBOB market has responded with further weakness to shut this avenue of additional barrels as demand indicators in Europe remain weak.  

The narrowing of the gas-naphtha spread continues to damage the economics as well, but after a very big downtrend we see some sign of reaching the floor.

Naphtha has corrected on the physical market and paper has felt it on the back of the curve, with lower backwardation levels.

If the recent correction in naphtha in the European physical market can be transferred to the June-July paper, we might see a better outlook for E10 blending (as well as the RBOB outlet) in the coming weeks. 


E10 blending margin has openend during the week on lower component prices. (Sparta Global ARBS – ARBs Dashboard)

On the US side, the weaker component prices in Europe have also stimulated the RBOB arb.

The margin is still not working for pure blenders, but it has improved by 3 cents per gallon during the week and is approaching levels that could open opportunities for the most advantaged refiners/blenders already for July deliveries. 

The lower blending cost in Europe is also joined by the increase in the T/A arb, with RBOB outperforming EBOB during the week on crack and spreads but increasing RVO levels have offset this effect on the RBOB arb, so higher T/A values will be needed to open the physical arb during the coming month. 

Total US mogas stocks decreased last week and should keep that path during next month and the beginning of the summer driving season.

Coupled with a very quiet European market, this suggests we could continue seeing higher TA numbers in the coming weeks.

This will improve the outlook for RBOB working from ARA if European components remain on this bearish trend or if gas-naphtha finally finds a floor. 


T/A arb improving during the week but still 5cpg closed for European blender. (Sparta Global ARBS – ARBs Dashboard)


T/A increasing but higher RVO counters the impact on the arbitrage. (Sparta Live Curves)

On the Eastern side, the AG continues to lose competitiveness in several outlets due to increased blending costs driven by rising component prices, especially in the case of reformate and naphtha.

After losing its position as the best option in WAF last week, now Singapore barrels are also more competitive in Saudi Arabia and Australia due to the rising costs in AG.  

With a better outlook for exports, the Sing 92 crack continues to fall from the historical highs marked at the end of April for the July contract.

As Eastern refinery runs are set to ramp up as they come back from recent planned turnarounds, we might see the gasoline crack correct struggle to move significantly away from long-term average levels around the mid-single digits.

Regional demand indicators remain strong, but even during summer it is difficult for the EoS market to remain immune to Atlantic Basin weakness.  


SG barrels pricing themselves as the cheapest option into Saudi Arabia and Australia, harming AG exports. (Sparta Global ARBS – ARBs Comparison)

Gasoline Demo

Jorge Molinero is a Commodity Owner at Sparta. Starting his career as a financial analyst with BBVA, Jorge quickly transitioned to market intelligence within the energy sector, spending 4 years as a naphtha analyst with Repsol before joining Sparta in early 2023.

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