Singapore shielded from further downside for now as EBOB rebound hits a ceiling
Commentary summary:
- Singapore is still looking better than its Atlantic Basin counterparts with export opportunities aplenty.
- Chinese export quotas and margins are not offering excessive pressure, and lower runs through maintenance/economic cuts are curbing marginal supply.
- Opened EBOB blend margins in the prompt put a ceiling on recent EBOB recovery.
- USGC market softening quickly to defend home markets, with PADD-3 vs PADD-1 dynamics opening waterborne RBOB to NYH in November.
- With NWE looking over-supplied for MRs, we would expect ARA to push back into LatAm shorts with TC2 heading lower and EBOB upside capped for now.
Sg92 cracks have begun to come off in recent days, but Oct/Nov spreads have remained stubbornly resilient as high-frequency inventory markers in the East remain constrained and demand for gasoline blending in Singapore should be strong on plentiful open arb opportunities.
With Singapore having captured Australia, Pakistan, and Saudi arbs, parity with AG/ARA into SAF, and open opportunities into PADD-5 for prompt loading, the physical market looks well supported.
Whilst alkylate, FCC gasoline, toluene and other component premiums have been heading lower in recent weeks, premiums on semi-finished streams out of India, Taiwan, and Korea have all moved sharply higher recently.
With open arbs helping to support demand in Singapore, the supply side is being propped up by Chinese export quotas which remain in-line with year-ago levels and reportedly poor export margins for Chinese refiners curtailing the appetite to push volumes into the market.
Elsewhere, lower marginal throughput on top of the regular maintenance season in Korea, Japan, and Taiwan (including Mailao’s No.2 RFCC being taken offline for almost a month) on the back of poor overall margins are also proving supportive, with distillates leading the margin pressure in the East helping to keep gasoline comparatively supported.
The opposite picture can be seen in the Atlantic Basin, where the end of the summer has brought with it the usual seasonal downturn in gasoline fundamentals and an initial race to the bottom which ultimately provided both a floor and a rebound opportunity for the EBOB complex.
That rebound has run its course for now, however, with E10 blend margins opening in the prompt and blend costs dipping lower on wider gas-nap spreads as some of the positive momentum in naphtha markets loses steam.
Indeed, even open blend margins have been difficult to sustain it seems, dipping negative again this morning, and a distinct lack of open arb opportunities out of Europe will be keeping a firm lid on EBOB cracks and spreads with a tendency towards slow declines again from here.
An oversupplied NWE MR freight market should see TC2 rates remain under pressure, helping to do some of the heavy lifting to reopen export opportunities.
However, having pressured USGC arbs into Mexico and Canada just a few weeks ago, the response from the other side of the Atlantic means it will take more than just falling freight to provide support to EBOB in the short term.
One consequence of pressured PADD-3 component pricing has been a rare opening of the waterborne RBOB arb to NYH in November.
It would appear that PADD-3 is now pricing in a healthier place for the next few weeks, with Houston seeing off competition into LatAm for now.
Moving forward, we would expect ARA to begin pushing into these opportunities with falling TC2 and a softening EBOB, with the uncertainty then surrounding how the Houston/RBOB complex reacts.
A TA Arb which has (net-RINs) weakened over the last few days may take a sustainable step higher, with seasonally average US gasoline stocks able to absorb some export arb pressure for a while.
Both sides of the Atlantic will see light planned turnaround periods, however, and gasoline cracks in the US in particular will need to be kept in check to encourage marginal utilisation lower through October at least.
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