Sparta Monthly Trading Update: November

Welcome to Sparta's November Trading Update! Prepare yourself for innovative market insights that will take your trading to new heights.

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Charts of the Month (October)

Chart 1: Crude

"Fundamentally WTI should have weakened against Brent through the 2nd half of October with WTI priced out of Europe and Asia, but freight rates stepped in and did the hard work so paper spreads narrowed?"

This chart is from the Sparta Historical Forwards feature of the Sparta platform, find out more information here.

Chart 2: Distillate

"November's global diesel and jet cracks – all of which have been gaining since the start of October"

This chart is from the Sparta Live Curves feature of the Sparta platform, find out more information here.

Chart 3: Gasoline

"The European gasoline market is correcting in both paper and physical markets due to the lack of export options in the second half of October."

This chart is from the Sparta Live Curves feature of the Sparta platform, find out more information here.?

Chart 4: Naphtha

"The prolonged decline in E/W and the rise in premiums in Asia are closing the arbitrage to Asia, which will keep the product in Europe in the coming weeks."

Crude Market Update:

Flat price saw volatile movements, peaking at 81$/bbl on the news of Iranian strikes against Israel on 1 Oct then sliding down precipitously to low 70’s after Israel’s retaliation that did not target Iran’s oil facilities. TD25 also spiked with the onset of the aggression, but has since tapered down to WS150’s.??

The return of Libyan barrels also spelled a collapse of FOB premiums for the light sweet Med grades like CPC and Azeri. This in turn pressured Forties and further closing the WTI arb into NWE for 1H Oct. However, freight rates for USGC to ARA dropped enough to make WTI competitive into NWE in the last decade of trade.?

?The East crude trading window for Dec loaders was muted with weak Chinese demand and year-end inventory management concerns limiting many refiners’ incremental crude purchases even with increasing margin. Mars was attractive vs Oman for Jan delivery.?

October's Crude Market Commentaries

Week 1: Spectre of escalation roils paper markets and arb econs

Week 2: Physical North Sea lacks outlets

Week 3: Weak European market is now pricing crude to leave the region

Week 4: Flat-price tumbles as Israel’s response did not include oil infrastructure and focus returns to lacklustre physical market

Week 5: Flat-price tumbles as Israel’s response did not include oil infrastructure and focus returns to lacklustre physical market

November's Crude Outlook:

As WTI arbitrages are keenly watched, attention will be on how they affect European and Eastern crude FOBs.

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Gasoline Market Update:

In the second week of October, the main highlight in the gasoline market was a sharp correction in the EBOB complex, affecting both paper and physical markets, with a $20/mt drop in reformate premiums as the key driver.

The RBOB complex remained stable, as did SING 92, despite high volatility in the latter in recent weeks. The primary factor weighing down European blending and pushing prompt spreads and components lower was an export market where Europe was uncompetitive in the West.

Mid-month, we noted that all Atlantic Basin outlets saw cheaper arrivals from the USGC following a significant drop in TC14, which pressured the EBOB complex and forced a correction to improve competitiveness.

This resulted in a sharp rise in the TA arb, very weak EBOB timespreads, and a drop in component prices due to falling demand. Another driver was the tight balance in PADD 3, which, in the second week of October, saw gasoline inventories hit an eight-year low, while arbitrage opened toward LATAM and Nigeria, penalizing EBOB due to its limited competitiveness.?

October's Gasoline Market Commentaries

Week 1: European gasoline rebounds, but Q4 outlook does not point to further increases

Week 2: Geopolitical premium fuels gasoline flat prices, while arbitrage outlook threatens RBOB complex

Week 3: The bullish outlook shifts across the Atlantic

Week 4: European gasoline under pressure as USGC export position strengthens

Week 5: RBOB complex holds firm while European and Asian market collapse

November's Gasoline Outlook:

The market has already priced Europe’s lack of competitiveness, which is now regaining new export options on both sides of Suez, reclaiming key markets and likely establishing a short-term floor in the recent decline. The rise in the TA arb, cheaper blending costs, and the recent increase in TC14 while TC2 remains weak have been the primary market adjustments toward a new equilibrium.

Our outlook suggests these trends may reach a ceiling, with the arbitrage from NWE to NYH opening since last week. We also see? US runs rising steadily in line with seasonal trends, which will contribute to a less tight Western market in the coming weeks.

Looking eastward, expectations are for the gasoline E/W to remain near historical lows (excluding post-pandemic 2022), as Europe has regained competitiveness into East Africa after the recent correction. This should keep SING92 under pressure, coupled with the increase in AG runs expected toward year-end.?

Curious about how Sparta does it? Jorge's precise forecasts are a result of leveraging the capabilities of the Sparta platform.

Sparta for Gasoline is custom-built for gasoline traders, offering seamless access to real-time market intelligence. Gain specific insights and tools essential for gasoline trading, all in one platform, enabling confident trades and early opportunity capture.

Naphtha Market Update:

At the end of October, we observed a strong shift in arbitrage economics. Following a sharp drop in E/W paper and an increase in physical premiums in Europe, European product now seems likely to stay local, with a margin $10/mt better for sending an MR from the Med to NWE than an LR2 to Asian outlets.

The naphtha market showed significant strength over the past month, continuing a trend that began in the spring. Cracks in both Asia and Europe began to rise and have remained strong in recent weeks, with the MOPJ crack consolidating in positive territory throughout October.

The arbitrage to Asia has been the main factor supporting the European market, with consecutive increases in physical premiums in Asia and a rising E/W spread that sustained arbitrage throughout the month.

At the same time, opportunities to send MR blending naphtha to PADD1 materialised as TC2 rates fell to annual lows, further tightening the market and leading to consecutive increases in European prices aimed at retaining petrochemical and blending product in NWE.?

October's Naphtha Market Commentaries

Week 1: Come together: Surging E/W spread countered by weaker Asian naphtha cash diffs, global cracks and time spreads find ceiling

Week 2: Short-term pressures on Europe, but will it last?

Week 3: Volatile naphtha market faces a changing arbitrage outlook and strong gasoline support

Week 4: Arb to Asia shapes Q4 outlook, still supported despite high seasonal levels

Week 5: Is naphtha’s peak behind us?

November's Naphtha Outlook:

The last week of October signals a different outlook for the coming month. OSN premiums in Europe rebounded sharply, while in Asia they remained flat for the third consecutive week.

Additionally, a $5/mt correction in the prompt E/W has completely closed the arbitrage, lowering demand expectations from Asia toward the end of the year. Similarly, the arbitrage from Europe to the U.S. market is now closed after being open for most of the past month.

Both factors suggest a less tight balance, and combined with increased supply expected toward the end of the year, indicate a looser outlook across all markets. Strong gasoline performance, along with the anticipated correction in gasoline—particularly in Europe and Asia—over recent weeks, has brought November and October gas-nap spreads to new lows.

However, at this point, both trends may have reached their limits, suggesting a moderate short-term rebound in the gas-nap spread and setting a ceiling for European naphtha premiums as export options to both sides of Suez mirror.?

Distillate Market Update:

As explored in the recent Sparta Market Update podcast, the global distillate market has shown marked recovery since the start of October, reflected in strengthened diesel and jet cracks and spreads.

Singapore diesel has shifted into prompt backwardation, with ICE GO and HO largely following suit. ?

The principal driver has been reduced Chinese distillate exports, hindered by weak export margins. Contributing factors include ongoing declines in US middle distillate inventories, now at 2024 lows, and a demand resurgence that has pushed ARA stocks similarly close to yearly lows.?

October's Distillate Market Commentaries

Week 1: Continuing bullish signals for ICE GO spreads and cracks but recovering margins/returning supply will be important to monitor

Week 2: Diesel market faces limited prompt upside as Middle East risks fade and US pricing adjusts to curtail exports

Week 3: Bearish outlook difficult to ignore as diesel markets slip into contango and margins likely to face further pressure

Week 4: Bullish distillate short term, but returning runs after maintenance and new supply should temper this; run cuts in East Asia, in particular, continue to be important to monitor

Week 5: Reduced Chinese distillate exports lend real strength, but for how long with crude runs, particularly in the US and Middle East returning

November's Distillate Outlook:

While the short-term outlook for distillates, especially jet fuel, remains bullish, the medium-term perspective appears less optimistic. Closed arbitrages into Europe and declining stock levels in both the US and Europe have tightened current supply, with the GO E/W and HOGO still discouraging diesel flows into Europe.

Additionally, the pricing of FOGOs and strong jet regrades continues to redirect diesel into their respective pools. However, a shift is anticipated as US crude runs ramp up post-maintenance, Russian distillate exports start to recover, and Middle Eastern refineries sustain high production levels.

Globally, improving refining margins, bolstered by current crude price weakness, suggest increased gasoil and jet fuel output in the coming months. Europe is also poised to emerge from refinery turnarounds, with major facilities like Pernis and Star soon fully operational again. Meanwhile, new refining capacity from Dos Bocas and Nigeria's Dangote refinery is set to enhance supply, further tempering bullish sentiment.?

Wondering how Sparta achieves it? James's precise forecasts are a result of harnessing the capabilities of the Sparta platform.

Sparta for Distillate is designed specifically for middle-distillate traders, providing seamless access to real-time market intelligence. Access specific insights and tools crucial for distillate trading, all consolidated in one platform, empowering confident trades and early opportunity capture.

Thank you for joining us for this edition of the Sparta Weekly Update. We hope you found the insights and updates valuable for your trading journey. Stay tuned for next month's edition.

Until next time, happy trading!