Diverging dynamics between Northwest European and Mediterranean gasoline markets

The European gasoline market faced diverging dynamics between the Mediterranean and Northwest Europe while the differential on paper was widening noticeably, an analysis by S&P Global Platts showed.

Particularly, the premium unleaded FOB Mediterranean cargo averaged a $9.05/mt discount against Gasoline Eurobob for the month-to-day, comparing to an average discount of $5.68/mt for the month before that. The discount closed at $9/mt on June 3, while it stood at minus $11.50/mt on June 2, a multi-month low.

One of the reasons could be the more pronounced impact of COVID-19 in the Eastern Mediterranean region compared to Northwest Europe where vaccinations are progressing at a faster pace and mobility restrictions were easing. WHO reported more than 10 million cases in the region at the beginning of the week while expressed concerns regarding controlling the spread of the disease. Despite some of the regional European countries such as Italy and Greece progressing largely in line with the rest of the Europe in terms of vaccinations and reopening economies, this was not the case for many northern African countries such as Egypt and Tunisia.

"I am not bullish for the Med," a source said.

Another reason could be Asia providing supply for North and East African shorts, leaving in turn more Mediterranean gasoline barrels in need to be directed towards either Northwest Europe or the US. Approximately 137,000 mt of Asia originating gasoline barrels were destined for African destinations for June so far, with 38,000 of the total arriving to Egypt, compared to 576,000 mt total Asian barrels over May, according to Kpler data intelligence firm.

"I don't think the Med is improving much, probably is weakening more than North," a source said.

These developments could continue putting pressure on the Mediterranean in the course of the following weeks while the arbitrage to Northwest Europe and the US remains open for regional gasoline barrels.

Mediterranean gasoline barrels heading to Northwest Europe over June so far stood at 101,000 mt total, compared to 330,000 mt total over May, Kpler data showed. Flows for the Atlantic coast for June so far were minimal, standing at 41,000 mt versus 343,000 mt over May total.

Non oxygenated barrels particularly could yield better margins for transatlantic routes, while Northwest European demand is stronger for oxygenated gasoline, according to industry sources.

Northwest Europe supported by US demand

Considering Northwest Europe, market dynamics were largely stable over the course of the week, while despite a softening market structure, forward looking demand was anticipated further improving.

The domestic blending margins reflected the marginally softer sentiment, but remained stable on the week. The front month June Eurobob FOB AR swap contract against the equivalent naphtha, averaged $68.80/mt over the month to-day, comparing to a $73.35/mt average over the previous month, while it closed at $63.75/mt on June 3. The margin was double in value comparing to the equivalent period over 2020, however still fell well behind the $140.14/mt average for the equivalent period over 2019.

The MTBE FOB ARA spread against Eurobob FOB front month contract averaged $89.80/mt over the month-to-day comparing to a $79.15/mt average over the previous month. MTBE is one of the main components into the summer gasoline blending pool, complementing higher volumes of light naphtha in the pool as well due to summer RVP specifications. The relative strength seen, also pointed at increasing interest for gasoline blending.

Gasoline inventories in the Amsterdam-Rotterdam-Antwerp trading hub remained rangebound in the week to June 3, increasing by 1.5% on the week to 1.187 million mt.

Non-negligibly however, US demand for European gasoline barrels also supports domestic market dynamics despite projected exports for June so far marginally lagging the levels seen over the previous months. This could be due to a lack of extreme market events in June so far comparing to those observed over previous months, namely the hacking of the Colonial pipeline in May and extreme weather temperatures in the Gulf Coast earlier in the year.

Around 267,000 mt gasoline volumes are about to move from Northwest Europe to the Atlantic Coast over June so far, while the total for May stood at 972,000 mt, Kpler data showed.

Transatlantic demand on freight rates was heard firming over the course of the week, while the key route for UKC-USAC was assessed at $17.82/mt on June 3, up from $14.52/mt the week before.

The spread between Platts Nymex RBOB front-month contract against Brent frontline contract, a common indicator for the gasoline arbitrage West, averaged $21.29/mt over the month-to-day, edging higher than the average for the previous month which stood at $19.42/mt. The spread closed at $21.30/mt on June 3.

According to the latest data reported on the day by the Energy Information Administration for the week ending May 28, a sizeable drop was noticeable for crude oil stocks, which were 5.08 million lower. A slight build was observed in US gasoline stocks which showed an increase of 1.5 million barrels, however the impact was not substantial on domestic gasoline market sentiment.