PADD 1 and PADD 3 look to diverge, as escalation keeps the floor high

Deep Dive Summary:

• RBOB: bullish prompt TA arb, bearish GC CBOB / RBOB
• EBOB: bullish EBOB spreads
• SING92: Sing92 spreads and E/W likely to gain

RBOB

While the broader oil markets have been subjected to the on-again, off-again conflict we have come to expect over the past few months, RBOB cracks have continued to climb as the global refining crunch has kept pressure on gasoline. RB spreads have generally remained rangebound, with TA marginally weaker from the week prior.

As the August future fast approaches this upcoming Friday, we have yet to see a physical reopening in the prompt TA arb, with system barrels continuing to filter into PADD 1.

The current import picture into NYH suggests that the first delivery date for workability into the harbour on forward prices is the 16th to 20th of September, with prices still not quite yet working on paper TA to attract additional barrels.

Houston on an NJA waiver has retained its position as the cheapest landed value into the harbour as the F1 to F4 switch occurs.

As PADD 1 inventories continue to decline, I remain in the camp that TA for August swaps will need to price in some marginal flows for August deliveries as we approach the end of summer driving season and inventories continue to draw.

Turning our attention towards Houston, despite the recent build in PADD 3 inventories, the export picture suggests the US protecting its barrels.

Houston on an NJA basis continues to land cheapest across the United States and Mexico more broadly as of time of writing, with ARA holding the premium into Montreal and briefly into Tuxpan as weakening Houston blend costs allow for Houston to retake the destination.

Across Latin America more broadly, a combination of Singaporean and ARA origin cargoes land cheapest in September windows, with few exceptions.

Singaporean cargoes land cheapest into Pacific Latin America, into Chile and Rosarito, while ARA origin cargoes are pricing cheaper into the rest of Central and South America, with ARA commanding the cheapest landed values into Guatemala, Argentina, Santos, Colombia, and Ecuador. This has left Houston landing cheapest into Paraguay, Suape, and Peru.

This has left USGC barrels with less of an outlet for export in the prompt. Ultimately this would support a view of a bearish underlying GC CBOB / RBOB differential as the market solves for an overly expensive GC market relative to the rest of the broader region.

(A-Grade Houston blenders gain positive margin in July and August)

An additional driver underpinning this view is the weakening in USGC components, leading to an open A Grade blender margin. As excess supply begins to pressure the market, the solver appears to be the GC CBOB / RBOB differential.

EBOB

As EBOB approaches expiry this upcoming Friday, cash E5 and E10 have continued to remain firmly bid on the window. The European gasoline complex (NWE and MED) is broadly tight. Prompt spreads have continued to tick upwards, while cracks have continued to set new seasonal historical highs.

Gas-Nap has swung considerably over the week as financial naphtha remains at the mercy of geopolitical swings with threats to the Bab el-Mandeb.

As the de-escalation news has begun to settle, Gas-Nap has begun to rebound, materially improving E5 blender margins to -$11.00/mt, while E10 blender margins have re-opened to +$2.00/mt.

Despite the strength in European components complex, notably ARA reformate is starting to follow US weakness in August values. Though, underlying naphtha premiums remain strong into the Far East in the prompt and steam cracker demand, with strong pull on European (MED in particular) naphtha supply.

I am not expecting Gas-Nap to materially lift blend margins in the near term. This does continue to add levels of underlying pressure to components in Europe and finished grades on the continent.

Europe is momentarily holding the landed premium into much of South America in forward windows. While seasonally adjusted specification switch spreads still appear marginally outright undervalued relative to 60 kpa / 90 kpa adjustments, it remains hard not to remain bullish on the Sep/Oct EBOB spread at these levels.

However, when the GC CBOB / RBOB differential materially allows Houston to retake market share within Latin America, it dampens the bullish outlook for the European market. Particularly, Dangote restarting puts the onus on EBOB to offer against increasing competition.

SING92

(EW has remained volatile over the past week)

Gas e/w has moved violently over the past week, with the initial rally due in large part to the spreading of the conflict to the Bab el-Mandeb along with the globally competitive nature of Singaporean origin cargoes.

(Singaporean MR landed in Chile becomes nearly uncompetitive as EW rallies)

As the spread gained up to its strongest levels since early June on July 23rd, the global competitiveness of Singaporean landed values into much of the Atlantic Basin had become quickly challenged, which subsequently coincided with an announcement of a de-escalation period between the US and Iran.

As Iran and the US have reengaged over the Strait over the past 24 hours, and the threats to the Bab el-Mandeb become increasingly realised with attacks on the Abqaiq processing facility and an increasing threat to southbound flows, e/w is likely to not approach the -$15 floors we have seen in the past few weeks.

The current thought for Chinese exports into the broader market suggests that gasoline exports for the month of August will be an average value between June and July’s export figures. Offers are still heard in the region as local refineries attempt to export excess refined product to prevent tank tops.

Given where prices currently stand for Singaporean origin cargoes, there have not been many changes since the e/w had retreated, with Sing92 holding the cheapest landed values into Asia and Oceania, into Eastern Africa to Tanzania and South Africa in Durban, and into Chile and into Pacific Coast, Mexico. Blender margins for Sing92 are currently negative as well.

All in all, this implies that e/w may have room to jump back to the -$7/bbl to -$8/bbl range for the August swap in the coming days, where Singaporean origin cargoes start to look a tad expensive into the Americas. Notably, however, the opportunity is less attractive compared to the weeks prior due to the higher floor set by the recent round of strikes in the Middle East.

Given where prices currently stand for Singaporean origin cargoes, there have not been many changes since the E/W had retreated, with Sing92 holding Asia and Oceania into Eastern Africa to Tanzania and South Africa in Durban, and into Chile and into Pacific Coast, Mexico. With blender margins for Sing92 currently negative as well.

All in all, implying that E/W may have room to jump back to the -$7/bbl to -$8/bbl range for the August swap in the coming days, where Singaporean origin cargoes start to look a tad expensive into the Americas.

Notably, however, the opportunity is less attractive than compared to the weeks prior due to the higher floor set by the recent round of strikes in the Middle East.

About the Author

Nikolas Plonski, our Oil Market Analyst for the Americas at Sparta, brings experience as a trader from Gent Commodity USA trading diesel and jet paper markets. Nikolas then joined Sparta, where he serves as a cross barrel analyst focused on the Americas.
Connect: LinkedIn

About Sparta

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