Gasoline in wait and see mode ahead of summer & Hormuz repercussions

Commentary summary:

• EBOB spreads look about fair value basis arbs.
• TA Arb rally continued but hasn’t yet markedly opened up new options for ARA.
• E/W might stay a little wider than anticipated for a few weeks yet with Chinese exports having some upside potential and Asian run cuts still not likely maxed out in May yet.

Through the week EBOB May/June rose (against my tentative call from last week) and has since fallen back down towards sub-$30 levels, alongside some consolidation in cross-barrel product spreads in Europe.

ARA’s position over in the East remains roughly the same as last week with Singapore having now captured Pakistan for May delivery over ARA.

Sing is also cheapest into West Coast Mexico so has consolidated that setup we were commenting on last week whereby once Singapore starts to see these options open up, we should see a bottom for E/W.

However, there is a bit more nuance needed this week from the high level with it looking likely that Asian refining runs actually surprise slightly to the upside next month given their successful efforts at crude procurement, draw on SPR.

Rumour is China is planning to export more products next month though the focus looks to be rather on distillate over gasoline.

So it could be that this miniature relative glut that has formed in general products in Singapore has some legs for a little while.

Does ARA need to claw back a few Eastern destinations short-term? Probably not on the whole. ARA is as of today no longer cheapest into Pakistan, and has lost its position in Mexico City with Houston clawing back that market.

But it is close run in Mexico City still and ARA remains cheaper into most LatAm destinations and East Africa. The continued rally in the TA Arb last week, which put levels into positive territory ex-RVO for May, has helped keep ARA competitive in the Atlantic, alongside weak components.

We’ve also seen the NWE Refinery margin into NYH open up, though the blender margin is still in red at -4.4cpg for May.

(EBOB struggling with Houston in Mexico City)

Reformate remains somewhat weak despite strongly positive E5 & E10 blend margins and wide gas-nap, which might tell us a little about a ‘relatively’ well-supplied European market at least for now and pre-summer (despite the obvious point that EBOB spreads are for normal times very strong).

But high flat price environments also put reformate under pressure due to trading on a mass basis and being used in volume blends.

On the whole, it doesn’t really feel like a place to be short EBOB spreads, particularly given the rally on crude (indicating some parts of the market are waking up to the big disruption from Hormuz).

In the US, PADD-1 stocks are not particularly low yet and have started to flatten out after a few draws, though PADD-3 stocks are looking decently low.

There is a general willingness to push down US product (and crude) pricing looking at the steep drop-off in HOGO level this week and the extreme levels that have rapidly been reached in the WTI/Brent spread.

I notice a bit more chatter on the topic of US export bans given the lack of progress on an Iran deal.

The next problem ahead are the EPA waivers; pipeline operators are still cautious about the implementation going forward (as well as State-level decision making).

Base case is that implementation will still go ahead but whether it is really going to put a cap on RBOB spreads & the TA Arb going forward is still in doubt.

The problems are simply larger and it can very easily be more about how low US gasoline stocks get over the coming weeks with summer demand ramping up and Hormuz problems only liable to worsen over time in Asia/Europe.

About the Author

Neil is a senior oil market analyst specialising in crude oil, refined products, and biofuels, with particular depth in refining economics, fundamental strategy and price modelling. He has held analytical roles at OilX and JBC Energy, and his market intelligence is regularly cited by Reuters, Bloomberg, and the Wall Street Journal.
Connect: https://www.linkedin.com/in/neilcrosbyuk/ https://x.com/NGCanalyst

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