SING92 stays bid

Deep Dive Summary:

• RBOB: Supply risks are emerging, though remain presently unsubstantiated. Waiting for a correction in freight to re-engage with opportunities.
• EBOB: Remain bullish EBOB Oct/Nov spread and bullish Oct Gas-Nap.
• SING92: Remain bullish SING92 Nov crack on supply disruptions. The e/w remains a challenging call.

The gasoline complex took a brief step down over the past week following the rumoured US diesel export ban, though supply concerns globally have re-emerged, prompting a rebound in cracks. Spreads have thus far failed to materially rebound to levels seen the week prior, but this is explained by changes within the arbs.

This volatility has been felt as managed money net positioning continues to rise, with net length in RBOB at 96 million barrels and shorts declining by 1 million barrels on the week. This initial sell-off has begun to reverse as there are concerns over potential strike action at Bayway in Linden, NJ.

Should a shutdown occur, this would materially tighten the balances within the delivery region, tightening the physical RB market at a point where supply typically increases due to increasing butane in the blends.

Spread weakness in the prompt Nov/Dec spreads can be explained by the opening of the TA arb within the past week. This was due in large part to concerns surrounding the implications for refining utilisation, with uncertainty surrounding a diesel export ban. This led the underlying rally in the TA, prompting an increase in export activity towards the US.

As things currently stand, US Treasury Secretary Scott Bessent is still reviewing the implications of a full or partial diesel export ban, while there is support from within the administration despite the risks to gasoline for such an action given the upcoming election cycle.

(TA arb has closed since the initial rally caused by diesel export ban fears)

Since the start of the week, the dramatic weakening of RBOB has narrowed the TA arb swaps, closing arbitrage windows for NWE refiners across all forward delivery windows. This has been in large part driven by gains within TC2 freight as fixtures prompted increased demand.

The weakness within the US market has likewise spread into the components market, as the RBOB/naphtha spread has followed the gasoline complex lower while freight has added further pressure to heavy naphtha arbs into New York.

Currently, only Huelva is receiving margin for naphtha into PADD 1. However, Brazilian sub-octane demand offers much stronger premiums. This points towards blend costs in New York finding some support during October as sales prices respond to low inventory and continued demand in Brazil.

Atlantic Basin gasoline cracks may have a few explanations as to why we saw the initial sell-off. On a macro level, increased flows of crude from the AG via the Strait and the recovery of the East-West pipeline in Saudi Arabia have materially improved supply for refiners.

Secondly, blends are set to have an increasing volume of butane in the market within the coming weeks, improving the finished-grade supply in the Atlantic Basin.

Regionally, in the Americas, marginal supply is improving with Joliet fully back online from its downtime. However, supply tightness is still an underlying fundamental supporting the entire complex. Much of this has been reversed as the risk of renewed strikes in the AG threatens the material improvement of supply.

(US gasoline cargoes remain broadly unattractive)

From a landed perspective, Houston-origin exporters for late October delivery windows remain broadly attractive within Central and North America.

Backwardation remains a persistent challenge for Houston exporters into further-flung regions, with freight likewise posing a challenge from a flurry of activity in reaction to a potential diesel ban, emptying supply and prompting this rally.

ARA has continued to hold landed premiums into Los Angeles, though the rallies in the e/w have yet to allow any Houston-origin cargoes to land cheaply into the region.

However, freight rates appear set to respond to an extremely bearish freight supply-demand balance, prompting the spot WS forecast to point towards prices falling to WS 310 over the 5–14 October window.

Vessel supply is 24 ships in the USGC, while incremental demand is non-existent, with fixtures happening last week. Beyond North and Central America, Houston exporters remain largely unattractive on a landed basis into South America and West or North African destinations.

This in large part explains the weakening seen within GC CBOB/RBOB Oct swaps through cycles 57–60 on Colonial. A weakening of freight rates could allow GC CBOB diffs to eventually find a floor. For the moment, however, PADD 3 is at the mercy of PADD 1 demand.

Overall, my outlook on RBOB exclusively (while keeping in mind the bullish complex) is a market that could very quickly spike on production disturbances at Bayway that would be quickly weakened by an opening of TA arbs, as export markets are set to remain weak for Houston exporters.

A reopening of arbitrage opportunities into more global destinations on a likely spot freight sell-off would begin to change my outlook on RBOB, despite increased butane in the gasoline supply and seasonal demand weakness, given the extremely tight global picture.

From a risk perspective, opportunities are more abundant within the EBOB and SING92 markets.

EBOB

The EBOB market has been relatively pedestrian compared with the weakening of RBOB spreads and SING92 strengthening over the past few days. EBOB cracks and spreads have begun to rebound following rumours of strikes on the Abqaiq processing facility in the AG as renewed geopolitical risks price into the market.

(Gas-nap resumes gains as the market prices in renewed geopolitical risks)

Gas-Nap has continued to gain despite rebounds in naphtha spreads. Fundamentally, Rhine and Danube water levels remain points of supply tightness, as both rivers remain a challenge for barges to pass, while blend margins have remained positive for E5 blenders in ARA.

The risk of AG naphtha supply via Jeddah, despite the poor demand seen within naphtha, has failed to suppress finished-grade margins.

This makes the outlook for NWE naphtha highly dependent on the conflict, as Jeddah LR arbs into November delivery windows remain open as a potential risk to the downside upon loadings for Rotterdam, while October delivery windows are closed from all regions.

(Arbs continue to look supportive for the EBOB complex in South America)

Despite the overhanging risk in naphtha, there continues to be optimism for EBOB values in the near term. In late October and early November delivery windows in Latin America, despite the gains in Gas-Nap, European exporters continue to dominate the export market into the region.

European flows towards Argentina heard picking up. The story for the European export market has turned considerably more bullish as the e/w has continued to climb, keeping any marginal AG supply from landing attractively into the region.

(The gains in E/W are re-shaping the gasoline market)

The most notable change seen over the past few sessions has been the reopening of East African opportunities for European exporters into Kenya and Tanzania due to the gains in the gas e/w.

This has surpassed gains made within the freight markets, Gas-Nap, and blend costs into these regions, and adds further export demand to an already tight European gasoline market.

As export opportunities remain open for European exporters, I remain bullish the Oct/Nov EBOB spread and Oct Gas-Nap spread, as finished European grades continue to look attractive on a global landed basis.

TA arb shorts are likewise worth considering should Bayway strike action fail to materially impact supply as the freight market corrects, sidelining Houston exporters while European exporters find new outlets.

SING92

(Sing92 prices rally at the end of September)

The strongest expiry of the September contracts has come by way of the SING92 market, with Oct/Nov spreads gaining to $15.45/bbl, while October cracks have gained over $9/bbl since the week prior, trading at $41.65/bbl, and most notably Sep e/w settling at an extremely strong level of +$5.20/bbl while October e/w is trading at +$0.35/bbl.

This comes as the market contends with supply issues within the region and renewed rumours of further strikes in the AG.

(October Sing 95/92 spread at record highs)

(Components in Singapore continue to gain)

Substantial Chinese export quotas, and regional supply disruption. Arguably the most notable move has been seen within the SING95/92 spread, currently trading at +$6.30/bbl for October diffs.

High-octane components have continued to see tightening in Asia across the entire octane complex. CN 92 non-oxy has dropped out of the marginal blend for Singaporean blenders as China’s export quotas are expected to be 200 kt lower than in September, supporting components premia higher.

The region faces additional supply challenges via refinery troubles, as the Mangalore Refinery was evacuated after a major fire at the coking hydrotreater, prompting premia for Indian components to remain supported. Meanwhile, rumoured strikes on the Abqaiq processing facility have added renewed support to prices as the market prices in potential supply shortfalls.

(Finished grades have outpaced components)

Despite the gains in components, finished grades in the paper market have continued to outpace these gains, allowing for gains in the SING92/MOPJ spreads while Singaporean blenders have seen continued improvements in blend margins.

(Singaporean cargoes are becoming increasingly less attractive on long haul routes)

As e/w has continued to gain, Singaporean cargoes have become increasingly expensive relative to external competitors.

This is most clearly seen within East Africa into Tanzania and Kenya, where these gains have allowed ARA to become increasingly attractive from a landed perspective into the region.

This is being amplified by continued gains in freight rates in Singapore and within the AG, aiding European competitiveness into the region.

Despite the increase in flows of crude from the Strait over the past week, CPP tonnage has remained a constraint on the East of Suez market. LR1 vessel supply remains extremely tight in the East of Suez.

As backwardation in the market has continued to gain, the tightening of LR1 freight and backwardation has trapped East of Suez supply within the region.

This is particularly the case as MR supply within Southeast Asia has begun to loosen towards a more normalised level, prompting most of the activity to be intra-regional rather than inter-regional.

(Sing92 cracks have gained)

Following from the past few market outlooks, SING92 Nov crack has continued to appreciate over the past week. The market has continued to react to the tight finished market, tight components picture, rolling structure, and potentially renewed disturbances to recently re-emerging AG crude flows, prompting this bullish reaction in East of Suez pricing.

Calling directionality on the Singaporean market has remained somewhat of a challenge, due in large part to the impacts of the conflict on Asia more directly. Given this uncertainty in the conflict at present, it remains a challenge to make a firm call on e/w spreads despite the loss in Singaporean landed advantages as the supply outlook tightens.

However, cracks remain a safer representation of physical tightness given supply disruptions, while offering strong structural support. Thus, I continue to hold my SING92 Nov crack bullish outlook.