Liquidity on non-oxy gasoline derivatives increases

Liquidity in Eurobob non-oxy gasoline linked derivatives listed by the Intercontinental Exchange (Ice) increased in October, with exposure now spilling over into 2024.

A 50,000t spread trade for Argus Eurobob non-oxy vs Argus Eurobob oxy occurred on 27 October on the January 2024 contract, as well as a 50,000t trade on the February 2024 contract the same day. That brought open interest on the 2024 forward curve to 130,000t, in addition to the 249,000t open interest for the remainder of 2023, meaning total open interest for the product stood at 379,000t as of 31 October, compared with just 107,000t as recently as the end of September. There was also 94,000t of open interest on the outright Argus Eurobob non-oxy futures contract at the end of the month.

The rise in paper trading activity follows news that participants in the European market have begun agreeing deals for physical gasoline cargoes using Argus non-oxy assessments as a pricing basis — a change from oxy gasoline, which has traditionally formed the basis of pricing discussions. Much of the gasoline exported from European refineries is free of oxygenates — enabling the blending of ethanol in key export markets such as the US. With increased liquidity in the non-oxy derivatives market, export refineries and those that purchase from them are now more freely able to hedge using an instrument that closely matches the specification of gasoline that trades.

Eurobob non-oxy is an unfinished gasoline blendstock used to make finished grade E10 gasoline, which contains up to 10pc ethanol. The share of E10 as a proportion of the wider gasoline mix continues to grow across Europe as biofuel mandates strengthen in an effort to meet increasing greenhouse gas (GHG) emissions reduction targets. Around 21 countries in Europe have introduced the higher ethanol blend, with Ireland, Norway and Austria the latest to roll out the grade in April. The latest data reveals that E10 sales in France made up 58pc of total gasoline sales in September. Germany — where both E5 and E10 are mandated — had E10 sales at 27pc of the total, up from 24pc in the same month last year, and 14pc in September 2020.

Trade in the physical Eurobob non-oxy gasoline barge market has also risen sharply over the past four years. Non-oxy makes up around 48pc of total Eurobob traded volumes, up from 6pc in 2019, the first full year of a standalone non-oxy VWA price.

To reflect this wide and increasing uptake, Argus announced in May — after a period of consultation and market feedback — that the Eurobob non-oxy price would become the key price in determining European gasoline value from 1 January 2024. The current benchmark assessment Eurobob oxy will move away from being a standalone volume-weighted average (VWA) price, to being assessed as a differential to the Eurobob non-oxy VWA.

While the shift in trade in the physical market has been clear, the shift in paper trade has been slower. Open interest remains weighted towards Eurobob oxy with around 10.7mn t of open interest on the outright-value futures contract alone. But market participants expected non-oxy paper trade to rise from the fourth quarter, with the balance beginning to shift from oxy to non-oxy. More recently, traders have voiced views that trade could rise sharply from the new year once the transition takes effect.

By Jonah Sweeney