Risk off makes cheap gasoline even cheaper, with buy opportunities across the board

Risk off makes cheap gasoline even cheaper, with buy opportunities across the board

Ceasefire headlines trigger an indiscriminate sell-off, but gasoline was already the laggard in this crisis — and the structural support hasn’t gone anywhere.

Commentary summary:

• The overnight ceasefire report has sent risk premium unwinding hard across all products today, with the May E/W collapsing $4.35/bbl in a single session to parity and the EBOB May/Jun timespread giving back $13.75/mt to $32.00/mt.

• Gasoline was already the underperformer versus distillates and naphtha through the crisis. The sell-off today is an opportunity to accumulate longs in a product complex that has been looking cheap already and whose balance will remain tight even if SoH flows start to stabilise once more.

• Prompt gas-nap is widening on the day (+$8/mt to $142/mt May26) — confirming that naphtha unwinds faster than gasoline on a de-escalation signal.

• The Q2 EBOB crack average at $21.80/bbl is essentially flat on the week despite the noise — still marginally below 2024 levels, for example.

• Sg92 and RBOB have sold off hardest in percentage terms, but the physical inventory draws that have accumulated across Asia-Pacific (and reportedly also in Europe) over recent weeks don’t reverse overnight.

The ceasefire report last night has already been commented upon by my colleague Neil Crosby — with all the necessary caveats over its ability to hold and/or lead to reliable re-opening of SoH flows — has done what six previous “deal imminent” headlines did not quite manage: convincingly shifted the risk-reward framework for the week.

Right now it might be tempting to sit back and wait for further clarity, but right now the gasoline complex makes a buy case particularly clearly.

(Gasoline cracks)

To start with the E/W and Asian strength, the key point is that even in a full ceasefire and Hormuz reopening scenario, the physical normalisation timeline for Eastern gasoline markets is measured in weeks or months at the earliest, not hours.

AG gasoline production capacity has been further compromised by attacks on Jubail industrial complex, and even if loading operations at Ras Tanura resume this week, the product voyage to Singapore is 20 days minimum.

(Sing92 Spd and E/W Gas)

The prompt Sg92 crack at $22.55/bbl — $5.05/bbl lower on the day — looks like an overreaction to a headline.

The May/Jun timespread at $7.90/bbl still carries reasonable conviction as a long, and the Jun26 crack at $19.10/bbl implies the market is already pricing a fairly swift normalisation that feels too aggressive relative to the physical reality on the ground.

(Gas-nap)

The EBOB picture is arguably the most interesting in the complex today. The crack itself has barely moved — May26 at $22.30/bbl, down just $0.70 on the day, and the Q2 average at $21.80/bbl is actually up $0.90 on the week.

These still feel low given the ongoing underlying demand pull from ARA into Eastern markets – still present even with E/W flat – as well as the inventory draws across the Atlantic Basin that have been accumulating under strong backwardation since early March.

At $21.80/bbl, a Q2 EBOB crack is below 2024 levels and remains a reasonable long from here in our view.

(May EBOB Crack – seasonals)

An interesting signal of the day is the behaviour of gas-nap. The prompt May26 spread has widened $8/mt to $142/mt this morning, even as everything around it has sold off.

This is precisely what the long gas-nap thesis anticipates: naphtha was bid up disproportionately by the AG petrochemical feedstock crisis, and that premium unwinds faster on a de-escalation signal than the gasoline side does.

The NWE naphtha crack has slipped back below zero at -$0.80/bbl, blend margins remain firmly shut, and the underlying logic of the summer widening — seasonal gasoline demand versus declining petchem naphtha pull — remains intact regardless of what happens at the Strait.

The Jun26 at $159/mt is down $9.25 on the day as the market partially prices in faster normalisation; I’d argue that correction creates an entry point.

Finally, on the US, the RBOB May26 swap spread is down 4.35 cpg to 10.85 cpg today, with Jun26 at 9.75 cpg. The sell-off is mechanical — crude lower, geopolitical premium unwinds — but it arguably overshoots the domestic balance picture, with the pull on PADD-3 exports not diminishing quickly.

The ongoing national pivot from RBOB toward CBOB is complicating the picture, especially as Colonial is maintaining Line 1 at ‘normal’ RBOB specs (7psi).

The EPA E15 waiver effective May 1st adds a further layer of complexity to the RBOB benchmark, and the 60-day Jones Act waiver expiring around mid-May creates a potential freight hurdle for PADD1 and PADD5 resupply.

(Atlantic Basin arb picture)

In short, today’s sell-off is following headlines, rather than respecting gasoline fundametnals. Gasoline was already the laggard in the crisis rally, and the physical demand story for summer does not disappear with a ceasefire headline.

We would be looking to buy the dip across the complex — gas-nap Jun26, Q2 EBOB crack, and arb spreads that may move with gas-nap widening — while keeping positions sized to reflect the genuine uncertainty around whether any deal is real and durable.

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