Prompt European gasoline forward curve in contango

Prompt Eurobob gasoline time spreads have entered a contango structure — where prompt values are at a discount to forward prices — signalling the weakest structure for the time of year since the pandemic year of 2020.

July Eurobob swaps were at a 75¢/t discount to August swaps at the close on 1 July. The spread had been in a relatively shallow backwardation — when prompt prices are at a premium to later dates — in recent sessions, although it has been narrowing steadily from $6.50/t on 1 June.

It is uncommon for the forward structure to be in contango at this time of year. In the corresponding session last year the July swap was at a $19/t premium to the August swap, and since 2009 the current scenario has occurred only twice — in 2020 when much of Europe was under Covid-19 lockdown measures, and in 2016 when the front of the curve was pressured by high European inventories and high US supply. The contango structure reached $5.50/t on both occasions.

The recent move builds on weakness exhibited last month, when the front of the forward curve between June and July moved into contango, a structure which was maintained through the rest of June.

Demand for gasoline has failed to meet traders' expectations this European summer. Stock levels have been robust, particularly in the US where high refinery utilisation rates have boosted supply and stifled the requirement for European product. This was shown in gasoline crack spreads to North Sea Dated crude in June, which moved sharply lower — counter-seasonally — to an average of $14.87/bl, $5.83/bl lower than in May and down by $9.68/bl compared with year ago.

There are already signs of this reversing however. In early trading today the front of the forward curve strengthened, with July marked at parity to August, according to brokers. Discounts in the spot barge market at the Amsterdam-Rotterdam-Antwerp (ARA) hub have narrowed relative to August Eurobob swaps today, indicating firmer demand, with participants saying there is a more workable transatlantic arbitrage.

By Jonah Sweeney