Gasoline cracks poised for a bounce back

Gasoline cracks poised for a bounce back

Global gasoline cracks are showing signs of stabilising and a supply-demand rebalancing could drive a rebound in cracks.

25 October, 2023
Serena Huang
Serena Huang, Head of APAC Analysis

Gasoline cracks have buckled under the pressure of a well-supplied market. Lacklustre cracks have come as no surprise as global gasoline exports continue to surpass seasonal highs for the third month in a row, coinciding with slowing travel demand from the Northern hemisphere. Cracks are, however, starting to find support at current levels buoyed by a supply-demand rebalancing.

Europe redirects gasoline to West Africa on closed transatlantic arb, lower Arabian Sea supplies

A closed transatlantic arb has seen more European gasoline cargoes diverting from US PADD 1 towards West Africa this month. Europe’s gasoline exports to West Africa are on-track to reach a 7-month high in October, pushing supplies to PADD 1 down to the lowest level since March.

The increase in Europe’s gasoline flows to West Africa complements reduced exports from the Middle East and India, amid ongoing autumn maintenance at several major refineries. Combined gasoline/ blending component exports from both exporting hubs have plummeted by 35% month-on-month in the first three weeks of this month, with Reliance’s Jamnagar, SAMREF’s Yanbu and SATORP’s Jubail refineries among others, shut for planned maintenance this month and expected to restart in November. To supplement the supply tightness in the Middle East, an additional 140kbd of gasoline/blending components primarily from the Netherlands, China and Singapore this month are en route to the region, compared to last month.

East- and Southeast Asia gasoline exports surge to new heights

Conversely, East- and Southeast Asia’s gasoline/ blending components have soared to a multi-year high of 2mbd in October (days 1-20), with nearly 78% of the supplies staying within the region up slightly from 74% in the first nine months of the year. Robust regional gasoline demand, off the back of refinery maintenance in Indonesia (i.e. Plaju and TPPI) have underpinned the stronger intra-region gasoline trade flows. Notably, Japan’s exports to South Korea have also surged, as robust refinery production and muted domestic demand led to a surplus for exports. Gasoline exports from East- and Southeast Asia to out of Asia were also up 10% m-o-m in October, filling in the supply gaps in Africa and the Middle East.

A supply-demand rebalancing could be underway

Given the current weak reforming and cracking margins, refiners are likely cutting back gasoline production, although the restart of refineries post maintenance could still lead to a net positive supply.

The additional gasoline volumes could be soaked up by the Southern hemisphere – including Australia, India, Latin America and Southeast Asia – which is expected to see a seasonal demand uptick this quarter. Africa’s gasoline demand has been stymied by steep price hikes this year, but price cuts could be on the cards for South Africa next month, which should rejuvenate demand.

US gasoline stockpiles continue to linger below the five-year average, largely impacted by ongoing maintenance activities. Additional gasoline supplies post refinery maintenance could bolster restocking efforts without adversely impacting gasoline cracks.

Serena Huang
Head of APAC Analysis
Serena Huang
Serena leads the APAC energy market analysis with over eight years of technical and commercial industry experience. Prior to this, she was a senior market analyst in Wood Mackenzie, taking a key role in Asia’s crude and refined products analysis, refinery benchmarking and offering thought-leading insights on the market.