Gas E/W looks due for a heat check

Global gasoline spreads and cracks have resumed their upwards momentum in the Atlantic Basin, while in Singapore prices have continued their meteoric rise, as June Goh noted in a cross-barrel analyst brief earlier this week, prompting 10-year highs in SING92 cracks.

Gas E/W arbs have rallied significantly over the past few sessions on continued risk to underlying supply into Asia as the conflict in the AG continues to intensify. This has caused prompt arb values to rally to highs unseen since late July.

This rally comes at a safe point for Asian shorts, as the freight market in the EoS has already served as a hindrance to east-to-west flows of gasoline, with current freight supply EoS 36% to 56% below the 90-day baseline, prompting remarkably high freight rates towards the Atlantic Basin.

The gains in swaps and freight have forced Singaporean-origin cargoes to appear considerably less attractive on a landed basis into much of the Singaporean regional market.

All opportunities into the Americas and Western and Southern Africa are landing unattractive for late October deliveries, ceding market share on the continent to an already tight EBOB market.

Australia is likewise pointing towards the AG on a landed basis in late October delivery windows, as freight has continued to gain between the two markets. Underlying blend costs in Asia have failed to decline for Australian ULP, as UAE 95 non-oxy components have continued to remain weak despite reformate gains in the region. Gains in Singaporean LVN prices have likewise contributed to the increases in blend costs.

In effect, this has left all opportunities for gasoline out of Asia closed, at a time when crude slates are set to lighten, naphtha arbitrage opportunities for all grades have opened for October and November delivery windows. This suggests that SING92 blending opportunities, which have gained to $4.35/bbl for Singaporean blenders, should improve supply in the coming month.

Overall, the loss of outlets, inbound components in forward windows and sky-high freight looks set to mitigate the gains in the East relative to the Atlantic Basin.

The key risk to this view is the gap between Chinese export quotas and actual physical flows into the region.