European market finds a floor: Will it last?

The global gasoline market has experienced its first rebound over the past week since the decline that began in mid-August.

Despite global concern remaining focused on demand and manufacturing data showing signs of a downturn across the US, Europe, and China, the dynamics of gasoline arbitrage and low stock levels continue to indicate that the current rebound could extend in the gasoline market.

Additionally, new bullish factors are revitalising optimism in the crude oil and products market, with forecasts that production cuts may occur in the USGC ahead of Storm Francine, Libya declaring force majeure on several crude cargoes, and US crude inventories hitting their lowest levels in the past year.

So far, we have already seen the first signs of this rebound, especially in EBOB timespreads, where the Oct/Nov spread has already accumulated a $5.5/mt increase from the lows reached in early September. And with the entire timespread curve trading upwards.

EBOB timespreads gained $6.5/mt during last week. (Sparta Live Curves)

In last week’s article, we pointed out that the decline in the European gasoline market should find a floor in the short term, given that the weakness of local blending and corrections in freight costs have made Europe the cheapest export option to almost all destinations, with a significant difference compared to the US in Atlantic outlets and improving the economics of AG and Singapore in numerous outlets in the East.

We believe this situation will not be sustained over time and European market will keep trading higher to revert the situation for Q4.

Gas-nap also seems to be finally attempting to find support after the accumulated decline since Q2. Following a $120/mt correction since April, three consecutive sessions trading upwards have placed the rebound at $15/mt currently, now facing the $45/mt support level.

Gas-nap find some support after $120/mt downtrend accumulated since April. (Sparta Historical Forwards)

Leaving aside the European market, there are fewer reasons to find support in the US market, a counter-seasonal increase in gasoline inventories this week, primarily driven by a rise in PADD 1, has left total levels above those of the last three years in the seasonal comparison.

The competitiveness of the USGC as an exporter to LATAM is severely damaged by the lower cost of the alternative from Europe, which continues to offer better margins to most markets east of Suez, with a substantial difference when comparing the delivery prices of both options.

For example, than from the USGC alternative, and similarly, Ecuador, Peru, and Colombia also find their best option in importing from Europe. We believe that the RBOB market has the highest likelihood of continuing to correct in the short term due to this loss of competitiveness.

EU keeps beating US exporting economics into LATAM. (Sparta Global ARBS – ARBs Comparison)

US total gasoline stocks climbed over last three years values after a counter seasonal movement. (Source EIA)

In Asia, the competitiveness of the European barrel is also putting downward pressure on the SING 92 complex. However, we’ve already seen that, after this week, the European alternative has lost some of its appeal.

Although it remains cheaper than AG and SG in many markets, from Tanzania to Australia, our bullish stance on European blending at this time remains intact.

We do not believe that it will remain a viable alternative in the East of Suez outlets for many weeks, which would help reduce competitiveness in these markets and potentially stimulating a short-term recovery in AG and SG exports.

EU keeps being competitive into the East of Suez but last market movements improve the outlook for exports from AG and SG. (Sparta Global ARBS – ARBs Dashboard)

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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