Europe regains competitiveness amid freight adjustments, but Eastern competitiveness into the West keep timespreads and cracks under pressure

The gasoline market has corrected in the prompt, with EBOB and RBOB timespreads dropping over the last sessions due to the lack of outlets for European exports and the increase in arbitrage alternatives from Singapore to the West.

The lack of alternatives from Europe in both transatlantic arbitrages and the threatened loss of some common outlets like Nigeria in favour of Singapore have driven to a correction in timespreads, especially in Europe, as we anticipated in last week’s commentary.

However, the most significant market movement in recent days has been in ex-Europe freight rates, with sharp declines that have brought the market back to a more typical situation, opening up new opportunities from Europe.

Now the question is whether the Eastern pressure will continue impacting the Western indicators, or if the room for further declines has disappeared given the new alternatives.

EBOB timespreads corrects in the prompt, on the back of losing competitiveness to Americas and Africa. (Sparta Live Curves)

TC2 collapses during the last sessions, opening new opportunities for Western arbitrages. (Sparta Live Curves)

The market has reacted to the lack of alternatives from Europe with a correction in freight rates. The sharp drop in TC2 has changed the landscape, and Europe has improved its competitiveness into New York, despite the margin remains close and AG barrels pointing to NYH.

The impact of the decline in freight rates has boosted the economics of blending RBOB in Europe and arbitraging it to the US, marginally opening up opportunities for arrivals in the last week of August.

We don’t expect a significant impact in the short term, but the improved economics down the curve have also brightened the outlook for September and Q4, with the margin improving to 6 cpg, even though it remains in negative territory.

We can expect that if the bearish pressure on EBOB continues due to the threat of barrels from the East, we could see medium-term options from Europe to the US.

RBOB arbitrage from Europe improves and now its marginally open for end of August deliveries. (Sparta Global ARBS – Pricing Centre)

Looking at the arbitrages from the East and comparing landing prices into Nigeria, although the margin remains very tight, Europe is now the cheapest option to supply this region again.

After the reduction in blending costs in Singapore and the sharp drop in freight rates from East of Suez to the West, Singapore remained the best option for arbitrage to Offshore Lome during the first ten days of August.

However, the correction in freight rates from Europe has realigned the arbitrage, positioning Europe as the best short-term option for September deliveries and reducing the bearish pressure on the EBOB complex in the short term.

EU recovers its price competitiveness into Nigeria after freight correction. (Sparta Global ARBS – ARBs Comparison)

However, the East/West gasoline spread continues to push for greater arbitrage from East to West, with further declines this week, now totalling $2.6/bbl since the beginning of the month.

The current arbitrage option from the Arabian Gulf to New York is particularly relevant, as it remains open via the Cape of Good Hope, with a margin close to 3 cpg.

The threat of arrivals from the East persists, indicating that the correction in freight rates from the West alone won’t be enough to stabilize the market.

Pressure in both the US and EU is likely to continue, so we remain cautiously bearish in the short term, although the opening of new opportunities from Europe, such as Nigeria, could help support the market and provide a support in the medium term.

RBOB arbitrage from AG remains open one more week, adding pressure to the Western market. (Sparta Global ARBS – Pricing Centre)

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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