ANALYSIS: NWE gasoline arbitrage to US weakens after Thanksgiving freight rate rise
24th November 2020 13:10 GMT

Options for sellers of gasoline in Northwest Europe have become more limited of late as clean tanker freight rates have increased due to surging demand ahead of the US Thanksgiving holiday.

Freight rates for key gasoline routes on Medium Range tankers saw a sharp rise on Nov. 20 with a number of trans-Atlantic cargoes pushed onto the market at the end of the week.

UK Continent-US Atlantic Coast shipments, basis 37,000 mt, were assessed unchanged at Worldscale 100 ($15.74/mt) on Nov. 23, S&P Global Platts data showed, having risen w25 on Nov. 20 as a result of the cargo rush.

Charterers typically push a high volume of trans-Atlantic cargoes before the Thanksgiving holiday in the US, looking to cover any available stems for shipment in the days preceding what will likely be a quiet fixing period.

However, the rise may create a ceiling for freight rates, because arbitrage windows risk closing altogether if they go higher. Pressure for European gasoline shipped to US markets comes at a bad time. Inventories in Europe are rising amid lockdown-induced restrictions on mobility and faltering exports to West Africa.


Mixed outlook


Overall, the outlook for gasoline shipped to the US has weakened. Inventories in the Amsterdam-Rotterdam-Antwerp trading region rose 7% in the week to Nov. 19, while stocks on the US Atlantic Coast -- a key outlet for Northwest European product -- rose for the fifth week running, by 813,000 barrels to 62.596 million barrels, according to US Energy Information Administration data.

Until mid-November, gasoline exports from Europe to the US were buoyant as low freight rates helped keep the Atlantic basin arbitrage open.

Local lockdowns imposed on some US cities -- including new measures in New York -– have sharply narrowed arbitrage opportunities, sources said.

However, figures from S&P Global Platts Analytics showed the arbitrage incentive was still open for gasoline, at least for now. Platts Analytics calculated the incentive for Northwest European gasoline into New York Harbor for Nov. 23 to be $2.54/b, up from 93 cents/b in October.


Economic stimulus


Demand in the US is under a cloud. “Higher US discretionary driving is at risk due to government stalling on an economic stimulus package and increased lockdowns given the surge in COVID-19 cases. Expect Dec. demand to decline 375,000 b/d versus December 2019,” analysts at Platts Analytics said.

US gasoline stocks inched 2.61 million barrels higher in the latest week to be slightly above the top of their historical range for the season, according to Platts Analytics data.

The Northwest European gasoline crack turned negative on Nov. 19., the first time since May 29 and a clear sign of the bleak outlook for demand for the remainder of the year against the backdrop of the second wave of COVID-19 restrictions.

On Nov. 23, the crack crawled back into positive territory, to be assessed at 40 cents/b, below the November-to-date average of 83 cents/b and the October average of $2.47/b.

Prompt gasoline markets in Europe have seen liquidity fall during November, as buying interest has dried up, particularly in the Mediterranean region.

The demand outlook for December was bleak. “December European demand is forecast to drop 320,000 b/d year on year following new lockdowns and restrictions in response to a second wave of COVID-19 infections,” analysts at Platts Analytics said


African prospects


The gasoline market in West Africa, another key export route for European sellers, has also been languishing. Exports in November were expected to fall 36% month on month to 11.47 million barrels, according to commodity data company Kpler.

“I have not seen WAF demand at the moment. It seems there is quite a lot of gasoline in floating storage in the region” a trader said.

A contango market structure may encourage European refiners to store volumes, with stronger prices expected in the new year.

Platts assessed the January Eurobob swap at a $4.75/mt premium to December on Nov. 23, with February at a $5.25/mt premium to January.

Platts ,
24th November 2020 13:10 GMT