European gasoline rebounds, but Q4 outlook does not point to further increases

The main event in the gasoline market this week has been a strong rebound in Europe, particularly affecting front timespreads.

However, after a sharp correction yesterday, the current trend is less clear. In this week’s article, we will explore the potential direction of gasoline indicators by examining the market fundamentals and the global arbitrage picture as we move into Q4, leaving behind a very volatile September. 

Looking at other markets, the dynamics of RBOB and SING 92 have been clearer over the past month. After a bullish first half, both are now in freefall, with declines in both spreads and cracks, putting pressure on refining margins.

Export options from USGC and SING 92 are opening up as European alternatives decrease, potentially providing short-term support for the recent downturn. 

Percentage change of the three cracks over the past month, with EBOB clearly outperforming the other markets. (Sparta Live Curves)

Starting with the Atlantic Basin, our arbitrage comparison shows a clear shift in the cheapest exporter to different outlets in the region.

Blending costs in ARA have risen enough in recent weeks to leave the USGC as the best option for most LATAM markets, including Brazil, Peru, and Mexico.

For Europe, the remaining alternatives are mainly Ecuador and Colombia, together with WAF where EU maintains a strong price advantage. 

The main factor currently undermining Europe’s competitiveness and boosting that of the USGC is the TA arb. During September, the accumulated drop has reached 6 cpg, despite RVO climbing 2cpg for October values, which has radically changed the outlook for Q4, now favouring US export prospects. 

USGC places itself as the best option into several LATAM markets now, Brazil’s chart as an example. (Sparta Global ARBS – ARBs Comparison)

TA arb big drop in the prompt. (Sparta Live Curves)

This situation is also negatively impacting the RBOB arbitrage options from ARA to NYH. The margin remains firmly closed for both blenders and refiners, and the Q4 outlook appears bleak at current TA arb and blending cost levels. 

The fundamentals also support this view, as after a counter seasonal increase in PADD1 stocks during September, inventories are now above the levels of the past three years.

Additionally, crude intake remains higher than these historical references, reinforcing the outlook that RBOB imports from Europe will not be widely needed in Q4. 

(Source: EIA)

(Source: EIA)

Looking at Eastern dynamics, another week of widening E/W and a significant downtrend in SING 92 spreads and cracks has helped recover typical outlets, driving EU barrels back to the West and normalizing the global arbitrage picture.

SING 92 timespreads are trading in contango throughout Q4 this year and Q1 next year, while the E/W gas spread is at historic lows, excluding post-pandemic outliers.

With limited arbitrage threats aside from EU to Kenya for October, a short-term recovery or the end of the recent correction seems likely.  

On the fundamental side we find some support to our view, with low inventories in Singapore and Japan and a firm demand coming from Indian data.

From the supply side, refinery turnarounds point to have a bigger impact in the Eastern side, preventing gasoline cracks to keep falling. All these factors suggest we could start to see a bottom for the SING 92 complex in the short term. 

ARA losing competitiveness into the East. (Sparta Global ARBS – ARBs Comparison)

E/W Gas drops to historical minimum without taking into account the last two years. (Sparta Historical Forwards)

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.

Sparta is a live, market intelligence and forecasting platform that enables oil traders, refiners, banks, hedge funds and wholesalers to have access to real-time and global actionable insights to capture market opportunities before others.

To find out how Sparta can allow you to make smarter trading decisions, faster, contact us for a demonstration at sales@spartacommodites.com