EBOB’s unexpected uptick looks to have run its course as demand pressures mount, but TA can re-open sporadically as EBOB finds its way lower
With the TA Arb still negative on a net-RVO basis, the narrowing of recent record high gas-nap spreads in Europe has moved the RBOB blend cost into unworkable territory for most European players in the prompt.
TC2 is yet to respond to what was presumably a spate of vessel fixtures to take advantage of the open RBOB margin in mid-month, and the TA Arb spread itself looks to have found a floor and is looking towards opportunities to move wider again in the weeks ahead.
Indeed, the downturn in the May TA Arb was much starker than anticipated and – given current PADD-1 inventory levels as well as the demand picture for the rest of the European export portfolio – we would expect to see this spread widen again before long.
A further contributing factor to this will be the narrower gas-nap spreads that have appeared so far this week, with a relative improvement in the picture for the naphtha market thanks to some signs of life out of Asia helping to reduce the pressure from heavily discounted naphtha (although on a historical basis the spread remains at extreme levels).
(Source: EIA)
Looking ahead, it could certainly be argued that PADD-1 will continue to need to open up the TA Arb sporadically – although the latest opening looked like more of a push from cheaper European naphtha than a concerted effort to pull any barrels across the Atlantic, and we will likely see the impact of the ~10 days of open RBOB margin show up in the EIA data towards the beginning of May.
The closure of that Arb opportunity in the prompt though – combined with pressure from the USGC into LatAm markets and the AG into WAF – has seen EBOB spreads come off strongly at the start of this week after the (unexpected) spike earlier in the month.
The weakening of the EBOB complex has already done the job of seeing off AG competition into WAF, as well as opening up some more niche opportunities (such as CARBOB or Australia PULP grade arbs) which could now put a floor under both cracks and spreads for the time being.
Finally on Europe, although we have now seen gas-nap narrowing, reformate and other high octane premiums are yet to react.
These are likely to come down though as supply normalises once we get into May, which should in turn help some ARA outlet econs and solidify the floor under the EBOB complex come May.
In the East, whilst the AG remains definitively the cheapest source of supply into all of its local outlets, pressure is being increasingly seen on arbs into Australia from both the USGC and ARA, as well as the arbs into the west coast of Mexico now pointing back to the USGC.
This is not yet cause for concern for the Sing92 complex, however, with spreads and cracks broadly holding on to recent above-average levels and some component premiums moving higher.
Overall, premiums on blending components into Sing have been trading sideways for the last few weeks (with alkylate a notable exception), and there remains little indication to suggest that this market needs to move up or down in any significant fashion in the weeks ahead.
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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