EMEA OCTANES: Key market indicators May 23-27

A wide gasoline-naphtha swaps spread is expected to continue incentivizing gasoline blending in the week, but a dearth of blending components like reformate and MX would limit the blending capacity, market sources said.

Gasoline, naphtha, butane

The Northwest European gasoline market continues to be strongly supported by export demand, particularly from the US Atlantic Coast, which saw stocks fall in the week to May 13 to an almost eight-year low. Nearly 292,000 mt gasoline are expected to load for export to the US Atlantic Coast in the week started May 22, up 114,000 mt on the week, according to Kpler shipping data.

In the European naphtha market, NWE blending demand remains constrained by a tight octane boosters market and an expensive reformer process despite the record discount to gasoline. The crack weakened $3.90/b throughout the week to be assessed at minus $10.14/b May 20. ARA stocks rose 47.6% in the week at 332,000 mt, signaling a long market.

In the NWE butane market, large cargoes fell 3.1% as a percentage of naphtha in the week, assessed at 95.9%. There was patchy demand for butane as a petrochemicals feedstock and little in the way of gasoline blending demand, sources said. If values in the butane market fall further, it was possible petrochemicals demand will increase as prices become more competitive versus naphtha.

Ethanol

The European undenatured ethanol market has been gaining over the past week, with participants keeping an eye on developments in feedstock markets. The T2 ethanol FOB Rotterdam benchmark has gained 3.4% on the week to Eur1,177/cu m with bidding interest and an absence of sellers in the Platts Market on Close assessment process from S&P Global Commodity Insights supporting prices.

India's ban on wheat exports has supported global wheat prices and tightened ethanol production margins further. Liquidity in the paper and physical ethanol markets is set to rebound in the week started May 22 after many participants were absent in the previous week due to biofuels conferences.

Reformate

Reformate demand for gasoline blending remains strong as a result of the wide gasoline-naphtha swap spread. The front-month FOB AR Eurobob swap was assessed at a $340.50/mt premium to the equivalent naphtha swap May 20, up $28.75/mt. Runs on reformers were high to increase supply ahead of the summer driving season, trading sources said.

MX

Domestic demand for MX is also growing as the product remains the preferred blendstock component in the rush to fulfil US gasoline demand, according to market sources. However, despite having slightly better availability than other high value octane boosters, there is not enough supply of MX to satisfy the growth in demand seen in both the US and Europe currently. Demand is expected to reduce in June, however, with premiums entering backwardation.

Paraxylene is expected to remain short in the week ahead due to negative production margins. Consequently, as a byproduct of PX production, orthoxylenes availability is expected to follow suit and remain short in the spot market. Demand for both these products is expected to grow in the coming weeks amid this tightness in the market.

Toluene

Gasoline blenders in the region are beginning to be deterred by high premiums currently seen in the market although demand for blendstocks such as toluene remains from the US. A source expected the demand frenzy to settle in the coming weeks as a result.

European toluene looks likely to remain tight as the prompt month draws to a close, since premiums still are not considered high enough to economically incentivize production, according to a producer. Spare cargoes, if any, would be exported over to the US as market participants look to take advantage of arbitrage opportunities into the region.