Gasoline, Oil Market Commentary

PADD-3 desperation to export barrels piles bearish pressure on wider Atlantic Basin market 

This week the domination of the Atlantic Basin by Houston-origin gasoline arbs continues, with PADD-3 pricing aggressively to flush barrels out of the region. This is a pressure on both EBOB and RBOB – albeit for different reasons – and should see PADD-3 inventory builds stop or even reverse.

Indeed, the first consequences of this are beginning to appear as prompt USGC MR freight rates into LatAm spiked yesterday, with both gasoline, naphtha, and distillate arbs out of the USGC looking attractive at the moment. 

(Sparta Global ARBs – ARBs Comparison)

E10 blend margins are narrowing already (and are closed for E5) and are likely to narrow further in the next couple of weeks as the recent run up of EBOB cracks softens in the wake of reduced European export pull and lower seasonal demand.

EBOB spreads are already in contango through Q1 in fact, and the extremely (comparatively) cheap barrels out of Houston are pressuring further.

With wide spreads between ARA and USGC for Lat Am destinations, and narrowing into Nigeria, there is only so much recent falls in outright price and limited prompt supply tightness due to refinery outages can sustain the EBOB complex.  

(Sparta Global ARBs – Pricing Centre)

That being said, the EoS remains an outlet for some marginal ARA export flows as the Sing 92 market has strengthened a little further.

Supported by resilient regional demand and some slow returns to export markets are turnarounds from some major exporters, physical premiums in Singapore remain strong and are not yet returning competition to the AG/EAF region.

This is likely to reappear before the end of the year, however, and we would expect any prompt tightness in the Asian market to soften in the weeks ahead. 

(Sparta Historical Forwards)

Speaking against a rapid softening of the Singapore market remains the wider-than-average octane spread, however, with the Sing 95/92 spread remaining stubbornly above $4/bbl recently.

The quality vs quantity issues we’ve covered in the Atlantic Basin are also present in Asia, albeit arguably to a lesser extent, and the premium that this is putting on blending components in particular is lending itself to Singapore not applying the same level of pressure that it would typically be able to in terms of competition into swing importers in the Middle East and East Africa. 

(Sparta Historical Forwards)

Finally, on the topic of gasoline quality vs quantity, gas-nap spreads have narrowed a bit further recently, and the $100/mt target is beginning to look possible once EBOB corrects lower in the coming weeks.

The underlying naphtha market remains weak, but propane market dynamics into the winter may be offering some marginal support and may indeed be enough to make the final push towards double digits on this spread as we close out the year. 

Philip Jones-Lux is Commodity Owner for Sparta. Having worked with organisations such as JBC Energy and RP Global, Philip is a seasoned energy market analyst with expertise across the oil barrel and power markets

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