Market correction intensifies after summer driving season, pressuring gasoline timespreads, cracks and gas-nap towards historical norms

Gasoline markets continue to weaken with timespreads and cracks falling in the prompt on both sides of Suez.

A significant rebound in the E/W over the past week expands European export options, but narrowing gas-nap, already threatening the $100/mt support level in the short term, harming the blending economics in the region.

The overall trend in products markets suggests a reversion to the historical mean over the past few weeks, moving away from the record values of certain indicators that we’ve witnessed during the last two years with the post-COVID period and the onset of sanctions on Russia.

This week, we will identify the key factors behind this correction and clarify whether the decline is likely to continue or if there are reasons to believe in a short-term support.

Timespreads sharp correction on every market. (Sparta Live Curves)

Gas-nap drops below historical average and faces new resistance at $100/mt. (Sparta Historical Forwards)

RBOB arbitrage remains closed from Europe for pure blenders, with perhaps some options for refiners for arrivals in the first half of September.

After last week’s drop in TC2, the economics of transatlantic arbitrage improved substantially.

However, the prolonged decline in gas-naphtha continues to harm economics, and in the short term, we don’t see profitable options from Europe to NYH appearing.

RBOB arb from Europe to NYH remains weel closed for the coming months, as gas-nap keeps harming the blending economics. (Sparta Global ARBS – Pricing Centre)

Regarding U.S. gasoline stocks,  over the last month, we’ve noticed a significant change in PADD-1, where after four consecutive weeks of increases, current levels are above those of the last three years, continuing to put downward pressure on the RBOB complex and making it difficult to see new barrels arriving from Europe.

PADD 1 gasoline stocks climb for 4th week in a row, adding pressure to the RBOB complex. (Source EIA)

However, European presence in other transatlantic outlets is more likely, especially in LATAM, where despite the increased blending costs due to the rise in gas-naphtha, Europe has regained its competitive edge as the cheapest source of supply for Brazil, Ecuador, and Peru.

Europe also retains the option for Nigeria, where Singapore is no longer a viable alternative after the decline in freight rates from Europe and a narrowing E/W, which leaves the European alternative with a significant price advantage.

EU has recovered its price competitiveness into Brazil, Ecuador, Peru and Nigeria, after E/W uptrend has harmed Singapore economics. (Sparta Global ARBS – ARBs Comparison)

Alternatives from Asia are disappearing in the West. The rise in the E/W, which has increased by $3.5/bbl in the last ten days, has wiped out the possibility of new arbitrages from East of Suez to outlets traditionally covered by Europe and the US, such as WAF, LATAM, and NYH.

Following the correction in freight rates from the West that we mentioned in last week’s commentary, arbitrage options from AG or Singapore to these outlets have vanished, removing from the market the threat that earlier this month had put downward pressure on EBOB and RBOB markets by significantly reducing export options.

E/W narrowing in the prompt has closed Eastern alternatives to supply Western outlets in the short term. (Sparta Live Curves)

In summary, although export options for Europe have improved due to worsening economics from the East amid a bullish E/W, the decline in gas-naphtha continues to damage blending margins, and PADD 1 inventories do not forecast large volumes to NYH in the short term.

Following the severe correction in the market with the end of the summer driving season, we maintain a bearish stance, particularly on short-term gasoline timespreads, as we have over the past two weeks, but Europe recovering its price advantage into the main outlets and gas-nap returning back to the historical average suggest the bottom of the downtrend could be reached soon.

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