The upward trend continues its course, the outlook for RBOB arbitrage improves and new destinations open up on the European horizon

The perception in the gasoline market has shifted from a counter-seasonally weak picture, with accumulated declines during May and the first half of June, to a market supported by late summer demand and an upward expectation in Q3, helping cracks and spreads strengthen on both sides of Suez and improving the outlook for Q4. 

Gasoline spreads and cracks recovering after Q2 downtrend. (Sparta Live Curves)

The TA arb is the main factor driving the change in trend, and as we have been noting in recent market commentaries, it remains on the rise, ensuring that the RBOB arbitrage from Europe remains profitable in August. 

It is not the only market where the European barrel continues to improve its economics, as in terms of landed values, two new destinations are emerging as an alternative for European blenders in the short term: Peru and Kenya. 

Looking at the Eastern alternative, increasing costs in AG blending, following the rebound in reformed products and the strong upward trend of naphtha in the region, Europe now presents itself as an alternative in the blending and arbitrage of 93 RON to Mombasa for August deliveries, contrary to the trend of recent months where AG’s competitive advantage has been clear. 

Europe points to Peru, displacing Houston and Singapore as the cheapest source of supply. (Sparta Global ARBS – Dashboard)

The same has happened in the Atlantic Basin, where Europe appears to be the most competitive option in Peru, improving the economics of AG and Singapore, which until now have been the origins with the best economics for Peruvian 92 RON.

After this change in trend, driven by the poor outlook for European blending and the sharp rise of the TA arb since mid-June, Europe is the best alternative to supply all Latam markets, except for Mexico where the US maintains its competitive advantage. 

Europe shows its competitiveness into Kenya. (Sparta Global ARBS – Pricing Centre)

If we add these new destinations emerging on the European scene as an alternative for July and August blending, along with the fact that the RBOB arbitrage to NY continues to trade higher and September deliveries increasingly suggest that the margin will open in the short term, the outlook for the European spread and crack improves significantly for the medium term.

Despite the contango in the prompt, the backwardation is increasing from the specification change in September, and the current dynamics of physical arbitrages suggest further rises in the EBOB complex indicators. 

RBOB arbs remain open for August deliveries, while September improves on the back of rising TA arb. (Sparta Global ARBS – Pricing Centre)

On the fundamentals side, last week saw bearish EIA inventory data for both crude and products.

However, after a slight adjustment, mainly on the crude side, the pressure was short-lived, and we have seen the TA arb continue to push higher, as well as RBOB and Sing 92 indicators trading higher, especially in terms of cracks.

A few weeks ago, the outlook pointed to a bleak summer with constant inventory increases and high runs.

The gasoline market’s outlook has been strengthened by strong demand, weather-related operational issues and the recent decline in refining margins, which has curtailed production.

Therefore, the outlook suggests that the upward trend could continue in the short and medium term. 

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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