Strong August faltering as fundamentals start to catch up

Commentary summary:

• Atlantic Basin gasoline markets did not appreciate the news of Dangote’s RFCC restart on Friday, with the run up in Sept/Oct spreads through last week dissolving in one fell swoop yesterday.

• The European naphtha market has taken a significant step higher in the last few days, with tightness in the Med with the arb to the East open largely responsible there.

• Sept Gas-nap has narrowed some $15/mt so far this week, raising ARA blend
costs with the prompt RBOB arb into NYH shut by >4cpg even for an ARA refiner now with freight at 127.5WS.

• Last week’s reported build in PADD-1 inventories came on the back of an uptick in imports for the week, with arrivals from India helping to mask the continued low levels of TA movements. With the prompt arb consistently unworkable in recent weeks, we would not be surprised to see imports return to lower levels.

• The move lower in gas-nap is also being felt in Q4 currently, and feels like a justified direction given the comparative weakness of the summer gasoline market this year. With observable yields shifting strongly towards diesel so far in Q3, however, downside for the forward gas-nap curve may be limited by a relatively tighter supply situation going forward.

• In the East, much continues to ride on the swing suppliers in India and China, although ongoing issues at Malaysia’s Prefchem complex are also helping to widen the prompt 95/92 spread. Issues at the refinery are causing vessels to back up, pushing freight rates sharply higher and raising delivered prices on components into Singapore, likely closing the Sg92 blend margins again that had recently opened.

Philip Jones-Lux is Senior Analyst 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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