Light end summary: Margins slump as supply returns in a big way
Quantum Commodity Intelligence – European gasoline refinery margins have slumped to their lowest levels since switching to premium summer-grades at the beginning of April as the return of French supply combines with subdued export demand, weighing on naphtha alongside a sluggish petrochemical sector.
Eurobob oxy E5 gasoline cracks were assessed at $16.63/b Friday, having sold off almost $5/b this week as the resumption of French output flooded the ARA barge market.
Around 130,000 tonnes of Eurobob gasoline changed hands this week, more than the rest of April and not far from 150,000 tonnes traded in the whole of March.
It coincides with the restart of French refineries after months-long blockades forced around nearly 1 million bpd offline.
Structurally long gasoline, France is a major supplier of gasoline in northwest Europe and shifts volume into the ARA barge market via TotalEnergies and ExxonMobil, which both have refineries ramping back up since the start of April.
Market structure has flattened as output returns, M1-M2 spreads down to around $15/mt, from above $20/mt a week earlier and a one-month low.
That has crunched physical cash diffs, barge premiums over Eurobob swaps at low single digits by Friday from over $40/mt at the start of April.
A fall in European gasoline prices should stimulate exports, which has been subdued to both the US and West Africa recently.
Brokers have reported an uptick in demand this week, although arbs are still flat on paper around $0.25/gal on the transatlantic RBOB-EBOB spread, little changed from the end of March.
Increased competition from new streams in the Middle East and China, as well as sanctioned Russian volumes, have squeezed European exports to the lucrative west African market and are likely to remain a drag this year.
New regulations have added complications for the sector, the Netherlands requiring from 1 April stricter gasoline specifications on exports to low and middle-income countries, targeted specifically at African nations.
Naphtha
Gasoline's collapse has dragged naphtha lower, assessed at a 2023-low around $8/b below ICE Brent in both northwest Europe and Asia.
There is hope an uptick in transatlantic gasoline demand will pull more naphtha into the blending pool, which can be seen in ARA stocks – naphtha up 19% to 202,000 tonnes this week, while gasoline fell 5% to 1.3 million tonnes.
But gasoline blending remains the primary outlet for naphtha on a challenging outlook for the petrochemical sector amid sluggish European growth and persistent high inflation.
Utilization rates at Japan's crackers sank below 80% last month for the first time in at least ten years, with European cracker rates estimated at just 70-75% still, in a sign of how far there is still to go to reach 'normal' rates.
Increasingly competitive alternative feedstocks has added to the near-term downside for naphtha in Europe, although its premium to propane dropped to around $160/mt this week from one-year highs of around $200/mt last month.
Asia
Asia is equally struggling with oversupply, as China ups product export quotas after domestic refineries reach full capacity in the second quarter.
Data released this week showed China's March gasoline output up 13% on the month to 13.3 million mt as domestic refinery runs set a new record near 15 million bpd.
Regional refiners have also been heard switching to gasoline output from diesel on a distillate supply glut, having already trimmed jet fuel to increase light-end production.
Asian gasoline cracks are subsequently at a 2023-low, assessed by Quantum $10.86/b over ICE Brent Friday from $14.83/b a week earlier.
East-west gasoline spreads have narrowed to around -$6/b, from around -$10/b a week earlier, reflecting more weakness in Europe than strength in Asia.
And on naphtha, the east-west spread was marked at close to flat on balmo swaps Thursday and a small $2/mt discount on M1 May swaps, its highest since trading briefly at a premium at the start of last month.
