Markets tumble with Europe leading the way but first signs of a floor already in place
The major story in gasoline remains the precipitous selloff in the EBOB complex, with September cracks now down $5/bbl over the last two weeks, currently trading just about in double digits.
Whilst a correction of sorts was always on the cards with export outlets under threat and component prices having fallen significantly since the beginning of the month, the speed points to a market which is trying to very quickly brace itself for winter after a broadly disappointing summer.
The tumbling of gasoline cracks has coincided with an uptick in naphtha values, with my colleague Samantha Hartke noting that European naphtha petchem margins have been ticking up strongly throughout August at the same time as interest in European grades is rising in the East, providing two solid support pillars for European naphtha in the short-term.
This has combined to bring the September gas-nap spread down from $150/mt at the start of the month to just $86/mt at the last count, putting a big dent in European gasoline blending economics and pushing blend costs higher despite falling higher octane component premiums.
With Q4 gas-nap spreads now averaging $50/mt (essentially now at their long-term average levels if last year’s extreme highs and 2022 volatility are removed), this level is likely to be sustainable through September, given the new ‘normal’ dynamics of a European market missing Russian naphtha barrels remains.
Firmly shut E10 blend margins in the short and medium term also point to a bottom for EBOB as we move into September. European components markets have been coming off and premiums on reformate, toluene, and several other high-octane components are already trading below their recent seasonal historical levels for September.
With the autumn turnaround season ahead of us (albeit potentially a comparatively light one in Europe at least) and export opportunities for European barrels secured into WAF and LatAm, we should see a floor emerging in the EBOB complex sooner rather than later.
Across the Atlantic, a similar dynamic (albeit less pronounced) in both RBOB cracks/spreads and Houston component premiums have also helped to secure the USGC’s typical export destinations in Mexico and Canada.
Crude intake in PADD-3 is set to remain high in the next few weeks, whilst demand is already dropping off, leaving no room to ease pressure on this market either in the weeks ahead. Any expectations or forward pricing that was holding out for hurricane-related refinery supply disruptions are looking increasingly unlikely to pay off.
Instead, we will be looking at US gasoline needing to price more competitively into LatAm as well as competing against transpacific barrels at the margin closer to Q4.
Finally, relative strength remaining in Asia has already seen the USGC replacing Singapore as the cheapest source of supply into the west coast of Mexico, reversing a 3 cpg gap since last Friday.
Blend costs in Singapore have been rising steadily on renewed naphtha strength, and with forward refining margins looking weak, expectations that lower regional refinery utilisation due to upcoming turnarounds means support from the supply side will soon emerge.
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