Light end summary: Gasoline tumbles on winter switch, drags naphtha lower

Quantum Commodity Intelligence – Gasoline cracks collapsed in both Europe and Asia this week as the seasonal transition to cheaper winter grades was completed, dragging naphtha lower despite some positive signals from the petchem market.

Eurobob oxy E5 gasoline cracks slumped to a six-month low of $14.35/b over ICE Brent by Thursday's close – the first full day of winter-only assessments – down as much as $8/b over the week.

That outpaced a $5/b slide in RBOB futures over the same period to end the week at 2023-low of just $11.80/b over ICE Brent by Thursday's close.

Gasoline values typically fall on the seasonal shift to cheaper winter grades but have been amplified this year by unusually high prices through to late summer – and a relatively light autumn maintenance schedule on both sides of the Atlantic.

Steep crude prices mean outright gasoline values are still high at more than $900/mt, exacerbating the seasonal decline in demand by squeezing consumer appetite. 

Length is now building across the Atlantic basin, where arbs have all but dried up on worsening economics. RBOB-EBOB spreads turned negative again this week having spent most of August in the red.  

September exports on Europe's two major export routes - West Africa and the US – are scheduled at just 1.1 million mt this month, according to the latest Refnitiv data, down from 1.63 in August and the lowest volume in more than 2.5 years.

Stocks have been steadily rebuilding through September. US gasoline inventories increased 0.5% to 220.5 million barrels last week, EIA data showed Wednesday - up almost 4% on the same time last year.

ARA gasoline stocks were flat this week, but are running 4% above the same time last year.

Asia

The sell-off spread to Asia, Singapore 92 RON gasoline cracks down more than $6/b over the week to $5.02/b over ICE Brent by Friday's close – another low for 2023.

Pressure is expected to build with around 220,000 bpd of refinery capacity expected back from planned maintenance in October, according to analysts FGE.

Asia's gasoline deficit is seen down by 50,000 bpd on the month to 380,000 bpd, then 210,000 bpd in November.

Upside is still possible with demand seen higher in both China on the Mid-Autumn festival and National Day Golden Week holiday, as well as in India through Divali.

And despite news that Beijing would not issue any fresh export quotas for the year, Chinese refiners are likely to maximise diesel exports where margins are much higher. That could see gasoline exports squeezed through to the rest of the year.

Naphtha

Naphtha was dragged lower by gasoline this week but held up relatively well on signs that supply has tightened somewhat in Asia and northwest Europe.

Naphtha fell just over $2.50/b versus ICE Brent crude in northwest Europe to around -$15/b by Thursday's close on M1 swaps. Front-month naphtha CIF Japan swaps fell a similar amount to end Friday at -$14.64/b.

Both are around three-month lows versus crude, but have firmed against gasoline. Gas/nap spreads - or the reformer spread – are at their tightest since June at around $200/mt in northwest Europe or $120/mt in Asia.

That is despite naphtha being replaced with cheaper components such as butane in winter-grade gasoline.

Summer-grade gasoline cargoes are also still in demand outside the window – especially for export to the US, where high-octane component supply is tightest – dragging some length out of the region.

Arbs have also improved between the Mediterranean and Asia, helping to remove supply from northwest Europe amid heavy maintenance in India and Japan.

Several crackers are also seen returning from maintenance in October, despite difficult margins and a persistently tough market for manufacturers.

Data from Japan's petrochemical industry on Friday showed a 14% rebound in ethylene over the month to a seven-month high in August, as utilisation rates at the country's crackers increased for the first time since April to 79.8%.

While output recovered from the lows seen earlier this year, production levels for the struggling industry were still 5% down on the year and 14% below the same month in 2019.