Collapsing component premiums in the AG raising threat of further pressure on Atlantic Basin markets
The last week saw gasoline cracks and spreads retreating – as we have been calling for since late-April – and have appeared to find a floor at the start of this week.
For EBOB in particular, however, the fundamentals continue to point to further downside potential.
We have commented at length on the lack of export opportunities recently, and some correction in component premiums have helped to almost open up the E10 margin for some players in the prompt to provide something of a floor, but increasing competition from the AG is likely to pile more pressure on the Atlantic Basin gasoline market in the coming weeks.
A small rebound in the gas-nap spread (led by naphtha this time) in Europe has also helped to ease some of the pressure on the gasoline, with cheaper feedstock available to blend away some of the baseline blending components in the market.
The fact that RBOB has weakened more than EBOB (a slight surprise, but one I will touch on below) has continued to block off opportunities for ARA-origin barrels into Latin America.
With the AG now coming in to challenge the opportunities into WAF (the right-most column of the screenshot above) the picture remains particularly bearish for a European market continuing to see more supply coming back into the market by the week.
The pressure from the East is mounting as premiums on high octane components have plummeted on returning supply.
Reformate premiums have lost some $130/mt in the last two weeks alone, and similar moves to the downside have been seen in alkylate, MTBE, and other premiums as well.
The outcome of that is that AG barrels are once more looking to be competitive into WAF, which has historically been a strong signal into the European gasoline market that another round of weakening is needed.
Finally, in the East that market has largely followed the Atlantic Basin lower, which is also helping the AG arbs point to the west and maintaining an option for Singapore and North Asian barrels to move across the Pacific.
Although the latest round of Chinese gasoline quotas have startled the market a little, Chinese crude demand doesn’t look fantastic and demand in the big demand centres in the region continues to look robust, so I would be cautiously optimistic that the Sing92 complex can detach slightly from the Atlantic Basin and maintain more of its strength by comparison in the coming weeks.
Philip Jones-Lux is Commodity Owner for Sparta. Having worked with organisations such as JBC Energy and RP Global, Philip is a seasoned energy market analyst with expertise across the oil barrel and power markets
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