From European peak to US and Singapore opportunities

The global gasoline market faces a moment of uncertainty as we approach Q4. In the previous weeks, the position was clearer, especially in Europe, where multiple arbitrage options from Europe to both the West and the East led us to take a bullish stance on the EBOB complex.

After a solid rebound, particularly in timespreads, global cracks also increased, leveraging on a weak crude oil market.

The latest movements leave us with a less clear outlook at present. The upward correction of EBOB seems to have reached its peak, and the gains have shifted to other markets, especially the US, where the RBOB spread is moderately rebounding, attempting to move away from contango for the rest of the year, similar to Sing 92.

The picture for EBOB is Q4 is now more bearish than the other markets, as the lack of export options will pressure European market down in order to fight for new alternatives.

EBOB timespeads peaks while RBOB and SING 92 gain on increasing export options. (Sparta Live Curves)

However, the indicator that continues to face the most pressure is gas-nap, which, after weeks of uncertainty, is setting new historical lows both in the prompt and along the curve.

The naphtha arbitrage to Asia will keep the spread tight in the short term. However, the decline in naphtha cash differentials in Asia and NWE, has created a large gap between the physical and paper markets currently, and it suggests that the naphtha peak might be nearby.

Our view is that Q4 will bring a significant change in naphtha with lower steam cracking demand on the East, stimulating a return to wider gas-nap spreads but with a significantly lower ceiling than that seen through the previous two winters.

Gas-nap keep trading lower amid Asian naphtha imports. (Sparta Historical Forwards)

Looking at global arb dynamics, the picture for Q4 has changed. In summary, the European rebound has led to a return to a more typical market for this time of year, with Houston, AG, and Singapore regaining outlets whose imports are generally covered by them, avoiding competition from European blenders in many destinations.

Looking westward, the RBOB arbitrage remains economically closed in the prompt, and the outlook for the coming months does not suggest ample opportunities, likely reducing the arrival of cargoes from Europe in the medium term. The US stock picture supports this story of reduced arbitrage, as we approach the winter season with a US

Nevertheless, arbitrage dynamics bring new short-term opportunities for the US, significantly narrowing the margin between the costs of importing from Houston or Europe to key LATAM markets for October arrivals.

RBOB arbitrage from Europe keeps close and Q4 outlook does not provide a supportive picture. (Sparta Global ARBS – ARBs Comparison)

US total gasoline stocks climb above last three-year levels. (Source: EIA)

Despite a slight price advantage for Europe after the rebound of the TA arb, this week we have seen Houston establish itself as the cheaper alternative for Brazil and improve its prospects in markets such as Peru, Ecuador, and Colombia.

Additionally, the US has regained outlets in Mexico City and Canada, where European competition had previously hindered blending and exporting options from the USGC. Therefore, the outlook for October currently supports the recent RBOB rebound, which could intensify in the short term, putting Europe in a worse position and increasing the chances of the TA arb widening.

Moreover, although we do not expect a very severe short-term impact, the start of gasoline production at the Dangote refinery for local supply will reduce import demand, with Europe being the main supplier. This impact could further exacerbate the decline of EBOB along the curve.

Houston competitiveness improves in the most relevant Western otlets. (Sparta Global ARBS – ARBs Comparison)

On the Eastern side, fundamentals encourage optimism with low stock levels in Singapore and Japan, and the confirmed refinery shutdowns due to the impact of low margins could intensify in the medium term, affecting Q4.

From an arbitrage perspective, the outlook is optimistic, especially for Singapore, which has increased its flow to Mexico, becoming the cheapest alternative into West Coast Mexico.

This is also the case for Pakistan, traditionally supplied from the AG, and for South Africa, presenting a scenario of multiple open arbitrages for Singapore-blended cargoes. This situation is driving the rise of Sing 92 in recent days and improves the outlook for the beginning of Q4 in the region.

Singapore places itself as the cheapest option into Pajaritos, beating US netback and supporting SING 92 rebound. (Sparta Global ARBS – ARBs Comparison)

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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