TA arb continues to look undervalued in the prompt, while components tighten

Gas-Nap has weakened on the back of strong steam cracker demand still present and open naphtha arbs into the region from Rotterdam and Houston.

This has, however, had a noted impact on the E5/E10 blend margins, with E5 blender margins falling to -$17.50/mt and E10 turning negative at -$5.75/mt with underlying blend costs in Europe beginning to rise.

Despite European origin cargoes losing some ground in Atlantic Basin LATAM and the restart of Dangote, the seasonally adjusted Sep/Oct EBOB spread remains well undervalued (adjusted to $46.75/mt when accounting for blend cost differences currently) in my view, as the component picture begins to tighten and the TA arb remains open for September delivery windows. Should NYH begin to pull in barrels in August delivery windows as well (as I am expecting given the current fundamentals), I remain overall bullish on the EBOB Sep/Oct spread.

In New York, naphtha arbs from Rotterdam have likewise closed, implying that blend margins in the harbour seem to gain over the coming weeks.

This does somewhat set a high floor under crack values so long as naphtha demand in the East remains firm, until Asian steam cracker demand begins to recede.

Notably on the point of increasing NYH blend costs, the lack of imports and declining inventories in PADD 1 continue to lean towards a bullish outlook for August TA arb swap, with forward delivery windows likely to be supplied via Houston NJA.

However, outside of system barrels headed towards New York, delivery windows from the prompt till 15 September remain firmly closed at current levels.

All in all, I continue to remain bullish on the August TA arb spread.

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.
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