Near-term upside to gasoline cracks

^{Gasoline: A glimmer of hope at the end of summer driving season emerges in gasoline markets}

^{West of Suez}

Heading into fall, it is hard to see some upside to gasoline markets, however, there appear a couple of bright spots over the next couple of weeks. First, FCC refinery margins across Europe and Asia are flirting with net negative territory, according to our calculations based on Argus Media data. At the same time, simple margins in Europe have been in the red for a while, suggesting that the decline in primary processing in Europe this fall may exceed maintenance schedules. Indeed, our current estimates place European refinery runs in September down by more than 500 kbd m/m, with the risk firmly skewed to the downside, amid a difficult margin environment. By extension, we also estimate a drop in regional supply to the tune of about 200 kbd m/m, which coupled with the somewhat disproportionate sell-off in European cracks, compared to their other regional peers, places European gasoline exports again in attractive arb territory for most destinations. One way or another, the limited recovery over the near term can only do so much to European gasoline cracks, with the recent launch of Mexico’s Dos Bocas and Dangote’s reformer unit keeping the outlook to Atlantic Basin markets bleak towards the end of Q4 and beyond.

In the US, the situation is a bit more nuanced, as tepid performance in middle distillates, particularly jet cracks, amid the sizeable inventory build-up seen over the past two months, continues to weigh on yield switching, keeping gasoline production largely flat. Moreover, high-frequency product supplied data continues to indicate a robust end to the summer driving season in the US, which should see refiners sticking to the light distillate a while longer, keeping a lid on the near-term outlook. Beyond the near term, the looming startup of gasoline-heavy capacity across the Atlantic Basin promises to keep regional markets on their toes, as the end of the year looks increasingly tumultuous.

Gasoline Eurobob oxy NWE barge vs North Sea Dated ($/bbl)

Source: PVM Data Services (Vienna), Argus Media (historical data), Kpler (forecasts)

Gasoline 87 conv USGC waterborne ex-RVO vs Mars ($/bbl)

Source: Argus Media (historical data), Kpler (forecasts)

Gasoline reg RBOB NYH cargo ex duty vs Gasoline Eurobob oxy NWE barge ($/bbl)

Source: Argus Media (historical data), Kpler (forecasts)

East of Suez

There are some reasons for optimism in East of Suez gasoline markets over the near term, similarly to what we are seeing in Europe. First, industry sources, as well as recent investor calls by some of China’s majors, strongly indicate that gasoline exports will take a beating over the weeks ahead, falling by more than half vs recently seen levels. Second, this assumption is further underpinned by a shift in jet exports, suggesting yield switching at the margin amid tepid demand performance at home for road fuels. Finally, Chinese commercial inventories remain at a solid downside vs year-ago levels, which is nothing new, but in an environment of tightening domestic balance, as much of an upside to domestic crude runs remains unlikely, should keep exports in check for the time being.  

Elsewhere, expectations for solid demand performance across non-OECD Asia, excluding India and China, promise to keep regional balances tight over the rest of this year amid operational constraints (see Balikpapan’s delayed FCC launch), continue to paint a constructive picture for regional gasoline markets. Indeed, the East of Suez market remains somewhat shielded from the length accumulating in the Atlantic Basin later this year and beyond and as such, the hit from new capacity additions is set to remain muted.

Gasoline 95r Singapore vs Dubai ($/bbl)

Source: PVM Data Services (Vienna), Argus Media (historical data), Kpler (forecasts)

Gasoline 95r Singapore vs Naphtha Singapore fob ($/bbl)

Source: PVM Data Services (Vienna), Argus Media (historical data), Kpler (forecasts)

Gasoline 95r Singapore vs Gasoline 95r 10ppm W Med fob ($/bbl)

Source: Argus Media (historical data), Kpler (forecasts)
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