TC2 gasoline arb opens for the first time in several months as summer blending demand pulls ARA barrels West

The ARA to New York gasoline arb has reopened for the first time in several months, with blender margins in positive territory from May through June at close to +5cpg margins. These incremental barrel margins have been open since the end of April (arb into Canada open since Mid-April) and the physical evidence of the open arb is mounting in the fixture market.

Every transatlantic clean MR fixture over the past week has been a gasoline cargo, reflecting exactly the freight demand signal the arb economics imply. Neil noted today that RBOB has now rallied sufficiently to incentivize ARA-to-NYH flows, with US gasoline inventories already looking low approaching the summer driving season.

The Freight Supply and Demand (FSD) model reflects this combination of tightening vessel supply and expanding cargo demand. With vessel supply in the seven-day ahead window at 11 ships against a 90-day moving average of 14. Incremental demand adds a further 5 vessels to the picture, placing the FSD model firmly bullish. The forecast points to higher rates, from WS 227 to WS 252 over the coming week into the 10 to 19 May load window.

Jorge highlighted today that gasoline blending demand is ramping into the summer driving season, tightening the call on blendstocks across the Atlantic Basin and setting the stage for wider gasoline-naphtha spreads. The Amsterdam to Montreal gasoline arb is open through July at +17.65 cpg in May, a material margin that implies higher TC2 freight rates. ARA is also benefiting from healthy export margins into LatAm destinations beyond the primary North America trade, broadening the demand base for TC2 tonnage beyond a single arb route.

Fixture activity over the past several days confirms the gasoline demand and the bullish freight outlook. FPMC 32 fully fixed loading Sines for the United States at 270 WS for a 6 May laycan, the highest transatlantic rate of the week. Torm Atlantic fixed loading Pembroke for the United States at 250 WS for a 4 May laycan, while Yasa Orion was placed on subs loading Huelva for the United States at 255 WS for 8 May. Hygge, Humility, and Murmure all fully fixed in the 240 WS range loading Mongstad and Cont positions for Atlantic America discharge across 5 to 10 May laycans. The range of 230 to 270 WS reflects the current price discovery process as the arb reopens and owners begin to push above last done levels.

Expect TC2 paper to firm balance of this week in response to the physical freight activity. The structural freight demand picture for May and June looks increasingly bullish as the US driving season kicks off with open gasoline arbs. The bottom for TC2 rates is in; owners should look to push above last done levels and June TC2 paper around 220 WS offers an attractive entry point.

About the Author
Michael Ryan, our Freight Commodity Owner at Sparta, brings over a decade of experience with Trafigura in the energy sector managing risk across products and regions before becoming Head of Risk for subsidiary Puma Energy. Michael then joined the Trafigura commercial team trading freight while successfully growing the physical fleet through strategic dealmaking.
Connect: https://www.linkedin.com/in/mgryan/ 

About Sparta

Founded in 2020, Sparta made waves in the commodity analytics space in March 2022 when it secured a $6m series A investment from Singular. This success then later snowballed into a further $17.5 million in a series A funding round led by the technology venture capital firm FirstMark, with participation from existing shareholder, Singular.

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