Red Sea impact remains minimal so far, with US length still dominating 

Despite the headlines being drawn to events in the Middle East, the most dramatic pricing in the global gasoline market continues to be found in the US, where a seasonably long balance into the end of year and high inventories is seeing sellers pricing aggressively to place these barrels elsewhere.

Not only is the USGC the cheapest source of supply into the Americas and WAF currently, but also looking East in Saudi Arabia and Australia the US is remains the cheapest source of supply on paper.  

On top of the US pricing into Saudi Arabia, ARA is also the cheapest source of prompt supply into Tanzania and Indonesia and we have reached the first point of our look at the markets this week that is at risk of being impacted by reduced transit through the Red Sea.

With several majors already announcing that they are holding off on placing vessels through the Red Sea, the advantage may well swing back towards local (AG) or East Asia-based suppliers to provide prompt resupply into these swing destinations, therefore underpinning an EoS market which was otherwise starting to show more signs of weakening.  

Indeed, in Singapore premiums of alkylate as well as premiums on higher octane barrels coming in from typical suppliers in Korea, Taiwan, China and elsewhere have been steadily retreating as we move through December, pointing to increased physical supply.

However, Sing92 timespreads have remained stubbornly in a mild backwardation despite a shift in both Atlantic Basin gasoline contracts as well as flat price into a mild contango, and cracks have also moved up back into double-digit territory in recent days.

Looking ahead, having achieved this despite pressure from Atlantic Basin supply, and potentially now shielded from some of that due to Red Sea disruption, the recent uptick in the Sing92 complex should be sustainable, with heavy Q1 maintenance in the AG likely to support further through the New Year.  

In Europe, the gasoline complex has so far been unimpressed by recent developments, with both timespreads and cracks softening slightly yesterday and so far today.

Interestingly, the mogas/diesel spread has narrowed considerably in recent weeks, now down below $40/mt despite Red Sea disruptions theoretically threatening European distillates supply more than gasoline supply.

Similarly interesting is that with ARA being priced out of almost all Atlantic Basin destinations, the E10 blend margin is creeping closer to opening again as the call on blendstocks wanes.

We should expect to see this offering some respite to the physical ARA blend market over the New Year period, but will likely help to enforce the recent switch to contango and limit or reverse the recent uptick in EBOB cracks in the coming weeks.  

Finally, we are already beginning to see increasing news around heavy turnarounds in early Q1, centred largely in the AG. With AG component pricing already heading higher, this should be supportive to both European and Asian gasoline markets.

With the way that the market is shaping up currently, we are starting to detect a distinctly more bullish picture emerging for later in Q1 and into the spring period of 2024.  

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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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