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Highlights

Gasoline against naphtha spread flips negative

Cracking demand supports naphtha

LPG balanced on heating demand, tight supply

Rising concerns regarding a new COVID-19 variant detected in South Africa has led to an emergency meeting by the WHO Nov. 26. The global uncertainty was reflected in spiking volatility across financial markets, collapsing crude oil prices, and associated oil products' outright prices, including light distillates.

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Bearish sentiment for gasoline

Gasoline Eurobob FOB ARA closed at $651.50/mt, down 12% on the day and $88.50/mt, This was the largest daily change in absolute terms since May 15, 2020, and the largest daily price drop since April 30, 2020.

A bearish sentiment dominated the Northwest European gasoline market as European lockdown restrictions and the anticipation of further restrictions have limited gasoline demand. Additionally, the end of maintenance at European refineries such as Sweden's 125,000 b/d Gothenburg refinery have left the market teetering on the brink of oversupply. The recently steep backwardation softened in the last week, with the market structure flattening out to an extent as weaker market fundamentals persisted, but gasoline inventories in Europe are yet to be replenished as the backwardated structure remained. The arbitrage between Northwest Europe and the US Atlantic Coast was largely closed, so exports to the USAC offer little support to the Northwest European market. The front-month gasoline swap contract against naphtha equivalent dipped into the negative territory on the day, closing at a 50 cents/mt discount, down from $5.25/mt on the day and the lowest since Feb. 1.

Naphtha sentiment is mixed

Naphtha CIF NWE closed at $662/mt on Nov. 26, down 10.1% on the day and $75/mt. This was the largest daily change in absolute terms since May 15, 2020, and the largest daily price drop since April 23, 2020.

Despite the more bearish sentiment observed in naphtha outright prices, and particularly for blendstock grades in light of travel uncertainty and gasoline's near-term demand, the complex remains supported by petrochemicals producers' demand. At the same time, limited supply from the US Gulf Coast coupled with an open arbitrage to Asia also helped the resistance of spreads on the day.

"What a bloodbath today on flat price! But cracks and spreads somehow holding in," a source said.

The naphtha CIF NWE front-month December crack spread closed at $1.08/b, down from $1.11/b the day before.

LPG retains support

The LPG market in Northwest Europe was largely balanced with a mix of bullish and bearish factors underpinning the fundamentals. On propane, demand was strong inland amid falling winter temperatures and a subsequent increase in heating demand. In butane, there was little blending demand amid the worsening sentiment in the gasoline market. However, butane experienced tighter supply on restricted movements from the US to Northwest Europe. Both butane and propane were sidelined as petrochemical feedstocks due to continued premiums to naphtha. The physical CIF NWE large propane cargo was assessed at a $66/mt premium to CIF NWE naphtha cargoes Nov. 26.

Propane CIF NWE closed at $728/mt, down 6.82% on the day and $53.25/mt. This was the largest daily change in absolute terms since June 4, 2020, and largest daily price drop since April 23, 2020.

Butane CIF NWE closed at $712/mt, down 10.1% on the day and $80/mt. This was the largest daily change in absolute terms since May 15, 2020, and largest daily price drop since April 23, 2020.

Crude collapse pressures outright prices

The new variant has so far been detected in South Africa, Botswana, Hong Kong and Belgium, with the latter particularly triggering reactions from European governments to tighten travel restrictions and add several countries on red lists, including the UK, according to BBC. The WHO meeting remained in progress while scientists said it will take weeks to identify the implications of the new variant.

The generalized uncertainty led to a collapse in oil prices as at 1743 GMT, the ICE January Brent crude futures contract was down $8.50/b from the previous close at $82.22/b while NYMEX January WTI futures was $8.94 lower at $69.16/b.

The CBOE crude oil volatility index OVX was seen trading at 66.05% implied forward volatility during the late afternoon session, which was the highest level since Oct. 26, 2020.

Market participants would likely closely track the upcoming OPEC+ meeting Dec. 2, particularly related to decisions regarding rising supply that might put more pressure on products' outright prices.