European gasoline cracks dropped sharply on Tuesday, as chronically slow demand in Europe and a sharp fall in the relative strength of the NYMEX RBOB contract to ICE Brent pulled cracks downwards.
The balance-month FOB Rotterdam Eurobob gasoline crack swap dropped $1.60/barrel from Monday's close to be assessed at a two-week low of $9.05/b, while the June crack fell $1,35/b to be valued at $8.05/b.
Tuesday's fall reverses recent gains in the gasoline paper markets in Europe and hit near two-week lows for both months.
The front-month June crack was heard broadly stable between $8.15/b and $8.35/b during early European trading on Wednesday.
Sources said the sharp fall in crack values, which measure product price performances against Brent crude, was due to a combination of slow European demand and a sharp weakening of the RBOB-Brent futures crack.
European gasoline traders use RBOB-Brent to assess the viability of gasoline export opportunities to the US Atlantic Coast.
"When the arb is open to the USAC, as it is now, our cracks tend to stick a bit more to the RBOB-Brent variations," a European gasoline trader said on Wednesday. "When the arb is open, it means that an excess European barrel will price to go to the USAC."
On Tuesday, a sudden strengthening of the ICE Brent futures contract on stronger-than-anticipated European economic data put pressure on NYMEX RBOB's relative strength to Brent crudes.
At 1630 London time on Tuesday, the June RBOB-Brent spread was $11.41/b, down from $13.53/b at 1630 London time on Monday.
During early European trading on Wednesday, the RBOB-Brent crack was holding at approximately $11.76/b.
The fall in cracks caused a drop in European gasoline outright prices on the day, despite a $0.68/b gain in the front-month ICE Brent futures contract, which traded at $111.60/b at 1630 London time Tuesday.
Both FOB Rotterdam Eurobob gasoline barges and FOB Rotterdam premium unleaded gasoline barges fell $7.75/mt, to be assessed at $1,003.25/mt and $1,005.50/mt respectively.
