Gasoline drops in Brazil, hits record highs elsewhere in Latin America

Brazil's gasoline differential to NYMEX RBOB futures dropped 31 cents/gal June 9 even as the NYMEX futures and cargo assessments elsewhere in Latin America reached record highs.

The Platts assessment for Mexico delivered CIF gasoline rose $2.90 to $172.42/b, while Ecuador's RON 93 CIF increased $3.15 to $180.58/b, both records. Like most of Latin America, they closely tracked the record rise in US gasoline prices. The NYMEX July RBOB futures settled 5.43 cents higher at $4.2762/gal, the highest front-month settle for NYMEX RBOB since the contract was launched in October 2005.

But in Brazil, which has an active spot market for gasoline, several sources said a full cargo is going for 75 cents/gal below the NYMEX July RBOB futures, a 31-cent drop for Brazil's differential, leaving gasoline CFR Suape assessments down $10.74 at $148.10/b and Santos down $10.86 at $149.34/b. Combination cargoes -- half diesel, half gasoline -- were at a 45 cents/gal discount to the RBOB futures, according to sources.

"Usually, the gap between full and combi cargoes is not that much, more like 4-5 cents per gallon. But these days are not easy days," a Brazilian trader said. "But considering local prices, the arbitrage is still really closed even at minus 75 cents. So, it's kind of better for traders to buy less volumes and pay higher prices. Brazil gasoline is not easy to trade."

He and other traders said state oil company Petrobras brings in full gasoline cargoes and has a few en route from Europe, but that private companies typically co-load gasoline, especially during times of volatility experienced this year.

"Since they usually import Brazil gasoline specs as part cargoes, combined with diesel, for a few reasons, the gasoline price will be significantly higher," a second Brazilian market source said.

Brazil typically imports about 25% of diesel demand and about 15% of gasoline consumption. But stronger demand has also fueled growth in refined oil products imports, the country's National Petroleum Agency said recently. Petrobras raised fuel prices in March and May, reducing the discount to import parity that previously undermined product imports.

But the first trader said gasoline imports are still a struggle because Brazil has ethanol as a substitute "and we are in the middle of the sugarcane crop."

A third trader said gasoline is unlikely to go higher than diesel in Brazil, unlike other Latin American countries, because the specification is really a naphtha specification that needs up to 27% ethanol and because they need to import quite a bit more diesel than gasoline for the country.

Clean product trade flows to Brazil are slightly busier than normal but with fewer new sailings and from a wider variety of global sources than just the typical US Gulf Coast loading, according to Platts cFlow, ship and commodity tracking software from S&P Global Commodity Insights. At least one was a bigger Long Range-sized ship, the La Boheme for Tartan/Pilot, said to be carrying up to 515,000 barrels of reformate out of the Arabian Gulf to Brazil, Platts cFlow data showed.

"I would also imagine Brazil weakened on the gasoline on the back of the LRs heading there from AG/India," a shipping source said.