Light Ends Race To The Bottom

5 September 2022 Time to read:  minutes

Without too much movement in gasoline markets over the last week, we continue to see European cracks justified at their current lows.

Given that European export barrels currently command only a slender arb advantage compared to barrels out of the USGC into Lat Am and WAF destinations, any rebound in European gasoline cracks are likely to be short-lived for the time being unless they are matched by developments in the USGC.

As always at this time of year, however, without a significant hurricane season, the USGC is also likely to be increasingly looking to price barrels into export markets as domestic demand dwindles.

Live data from Sparta’s ARBs dashboard

With European refineries running at high utilisation to produce missing diesel barrels, unavoidable gasoline component supply needs to price out of the region. With naphtha cracks below -$20/bbl and gasoline cracks hovering around negative territory on a barrel basis a few months earlier than has been seen in recent years, the market is currently considering even finished gasoline as residue-like in Europe.

Furthermore, Europe continues to outprice Singapore-origin volumes into the AG and East Africa. Whilst this isn’t anything out of the ordinary for this time of year, with regional demand easing with the Atlantic Basin, these barrels are set to continue to pressure any surplus East of Suez gasoline barrels, keeping Singapore, Indian, and Chinese-origin gasoline within Asia for now.

Live data from Sparta’s ARBs table


Flat price movements since the turn of the month have added spice to today’s OPEC+ meeting, with talk of a symbolic additional cut from Saudi Arabia signalling a hope to steady a market otherwise focused on weak demand indicators. With Russia having indefinitely halted gas deliveries through Nord Stream 1, however, attention should be shifting over to natural gas markets, which have leapt higher once again to trade above €250/MWh for the October contract.

Although current storage levels in Europe remain on a healthy path to potentially avoid crisis-levels through winter, preparations continue to be made for fuel switching in power generation and liquid petroleum fuels remain an option.

Live curves visible on the Sparta platform

Indeed, in the months ahead, mogas-naphtha spreads and kero-naphtha spreads are worth keeping an eye on if Europe is serious about switching to liquid petroleum fuels for power generation in a worst-case scenario, with naphtha’s theoretical ability to drive CCGTs an avenue to explore if naphtha retains its current residue-status for long enough.

For now, however, increased utilisation of naphtha and LPG as refinery fuel is likely to free up some natural gas and heavier liquid fuels and help cut refinery running costs.

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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