Light end summary: Gasoline up again on tight Atlantic market, lower Asia runs

Quantum Commodity Intelligence – Gasoline climbed for a second week in both Europe and Asia as a tight Atlantic market combined with run cuts and maintenance in the east, while naphtha hit fresh lows on a worsening outlook for petrochemical demand.

Eurobob oxy E5 gasoline's notional refining margin topped $23/b versus ICE Brent crude this week for the first time since mid-April, assessed at $23.44/b by Friday's London cash close.

It followed another stock draw in the US, gasoline inventories hitting a seven-month low 218.3 million barrels in the week to 12 May, according to Wednesday's EIA data.

Stocks in the world's most important gasoline market are now around 0.8% below the same time last year and 5.7% under the five-year average for the week.

US output is likely to be impacted by a spate of refinery upsets this month. A deadly blaze at Marathon's Galveston Bay refinery this week – one of the country's largest – occurred during maintenance to a reformer, an octane-boosting unit for gasoline.

There was also a fire at Valero's Corpus Christi plant this week, while an explosion Shell's Deer Park refinery sent at least 9 workers to hospital earlier in May.

It follows a period of intense output from the industry, which ran full out in 2022 to maximise output during a period of steep refinery margins.

A tight Atlantic market should help mop-up any excess supply in Europe, with gasoline cargoes seen leaving the ARA region this week to the US, Canada and Brazil.

That contributed to a 3.3% slide in ARA gasoline stocks this week to 1.38 million tonnes.

Shipments to the US for the month so far are up to around 620,000 tonnes, according to Refinitiv data, with around 278,000 tonnes booked to depart this week.

That should bring it inline with April volumes of around 1 million tonnes, to levels consistent with seasonal demand for the time of year.

Transatlantic volumes have firmed despite what look like difficult economics on the route, at least on paper. The EBOB-RBOB spread dropped to its lowest since the end of January this week at just $0.20/gal, from nearer $0.23/gal a week earlier.

But that probably represents lower freight costs on the route. Spot rates for medium-range (37kt) clean tankers in the north Atlantic (UKC-USAC) halved last week to around $10,000/day, according to shipbrokers Gibsons, from almost $40,000/tonnes a day a month ago.

West African demand remains a drag on the complex, however, with just 256,000 tonnes departed so far in May, compared with 760,000 tonnes in April – and over 1 million tonnes in March.

Competition for the once-lucrative and ever-expanding West African market remains fierce. Saudi Arabia will deliver 170,000 tonnes of gasoline to the region this month, according to Refinitiv, its largest volume on record.

And Russia continues to take market share since sanctions, expected to deliver 250,000 tonnes this month from the Baltics and STS in the Mediterranean, the same as in April.

Asia

Singapore 92 RON gasoline cracks hit a similar one-month high this week, marked at $12.46/b over ICE Brent on Friday, up over $3/b in the last two days alone.

Structure tightened at the front of the curve, backwardation on M1-M2 swaps up to $1.50/b Friday, from around $1/b a week ago.

Cash diffs also moved back to a premium for physical cargoes, assessed $0.75/b over June MOPS on Friday, from discounts as wide as $0.80/b a week earlier.  

It comes as a heavy seasonal maintenance kicks off, combined with the first confirmed reports of run cuts.

Taiwan's Formosa plans to cut runs next month at its 480,000 bpd Mailiao refinery by around 7% citing weak margins.

And crude-processing units have been shuttered at two refineries in Japan this week, Cosmo Oil's 177,000 bpd and Eneos' 120,000 bpd plant, both in Chiba near Tokyo, because of maintenance.

Analysts FGE reckon around 600,000 bpd of refinery capacity in Japan is offline this month due to maintenance, while a further 500,000 bpd of works is due in South Korea in June.

India's BPCL was also seen seeking a rare spot gasoline tender to buy cargoes for June delivery, ahead of a turnaround at its 156,000 bpd Bina refinery next month.

Naphtha

Naphtha cracks started the week at fresh 2023-lows around $11.80/b below ICE Brent in northwest Europe and $10.50/b below in Asia.

A small contango market structure also opened up on European naphtha swaps for the first time this year – June/July spreads hitting -$1.75/mt on Monday - but was back to a $4/mt backwardation by Friday.  

Margins also recovered slightly by the end of the week, especially in Europe where buying interest returned to the physical window Friday, marked around $9/b below ICE Brent crude at the London cash close.

But naphtha remains under pressure from global oversupply, driven by a struggling petrochemical sector amid anaemic economic growth.

The IEA this week put Europe's naphtha demand down around 200,000 bpd in the first quarter compared with a year earlier, which more than offsets the loss of around 100,000 bpd of Russian naphtha exports to Europe before sanctions.

"Europe's petrochemical outlook remains challenging, as producers grapple with narrow margins, intense competition driven by massive Chinese capacity additions and weak local polymer demand." the IEA said on Tuesday in its market report for May.