TA arb and freight mirror the outlook for EU arbitrage, while new opportunities arise for Houston and AG exports

The gasoline market corrected downwards in US and Asia during beginning of July, giving up part of the gains in cracks and spreads for RBOB and SING 92 accumulated during the end of Q2.

However, the exception to the recent correction has been the European market, where EBOB has remained on the rise, even recovering backwardation in the prompt. 

The EBOB complex was supported by arb outlets in the previous weeks.

Export options to the US at the end of June and the beginning of July were key, alongside new arbitrages opened to several destinations, as we indicated in last week’s article, with Canada, Kenya, and multiple transatlantic options, like Peru, the most recent to open up. 

EBOB timespreads maintain their uptrend despite RBOB and Sing 92 correction. (Sparta Live Curves)

These new outlets have stimulated European blending, leading to price increases for some components like reformate and making it more expensive to place European barrels abroad.  

This increased activity has also been reflected in EBOB spreads and cracks trading higher, contrary to the decline of its counterparts in the US and Asia. That has caused a drop in the TA arb that will harm the economics to export to the US and several outlets in Latam in the coming two months. 

These dynamics are eroding NWE’s ability to export barrels abroad and increasing freight is also harming the outlook for September deliveries.

In recent days, a 15-point WS increase on the NWE-NYH route, combined with the rise in blending costs, a bearish T/A arb, and an increasing RVO have closed RBOB arbitrage, as we can see in the following chart.

The economics of August deliveries have lost 5cpg and are currently closed at 3cpg according to our calculations.

RBOB arb from EU collapsing on rising freight and blend cost and lower TA arb. (Sparta Global ARBS – ARBs Dashboard)

The outlook has not only worsened for the arbitrage to the US; new destinations in the Americas now point to Houston as a supplier during August and September, displacing NWE. These include Peru and Colombia, currently more favourable for deliveries from the US and Canada.

Despite NWE maintaining a cheaper delivery price for August, it could soon shift to the US as a supplier in the short term. 

HOU prices itself into Peru and Colombia after economics worsened for EU deliveries. (Sparta Global ARBS – ARBs Dashboard)

New arbitrage opportunities are also emerging from the East due to the rising costs of Western exports.

The AG is now targeting Kenya and Tanzania for deliveries in August and September, and also beating economics from the West to Indonesia.

Singapore is also targeting new markets such as Australia, where an MR now has a more competitive delivery price compared to the alternative of a European LR2. 

AG is now the cheapest barrel into several Eastern destinations. (Sparta Global ARBS – ARBs Dashboard)

Jorge Molinero is a Commodity Owner at Sparta. Starting his career as a financial analyst with BBVA, Jorge quickly transitioned to market intelligence within the energy sector, spending 4 years as a naphtha analyst with Repsol before joining Sparta in early 2023.

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