EMEA octanes: Key market indicators - 26 April

London — European gasoline export loadings are set to ease slightly in the week commencing April 26, but support will continue for higher octane blending components such as naphtha and ethanol as demand picks up in some European markets as coronavirus restrictions ease.

Gasoline, naphtha and butane

Northwest European gasoline markets continued to find support from loadings for delivery to the US Atlantic Coast in the week to April 23, exports which have been high during March and April. This support, however, may start to wane during the final week of April amid a saturated New York Harbour market; commodity data company Kpler shows gasoline exports from Northwest Europe to the USAC in the week to April 30 are expected to be around 760,000 barrels lower than the previous week at 1.65 million barrels. In the Mediterranean, tight supply in the Middle East has seen a flurry of cargo enquiries for loadings from the region to the Persian Gulf, offering an outlet when gasoline demand had faltered in some markets, such as Israel and Lebanon. Meanwhile, heavily discounted Mediterranean gasoline prices versus their Northwest European counterparts will encourage buyers to source gasoline from the region.

The European naphtha complex remained relatively stable in the week to April 23, while market participants are anticipating rising support not just from gasoline blending in Europe, but also through blending demand in gasoline exports to the US. Domestic blending margins also remained stable over the course of the week. The front-month May Eurobob FOB AR swap contract against the equivalent naphtha closed at a $76.50/mt premium, from a $76/mt premium the previous week, with limited volatility.

The indicative naphtha arbitrage to the US narrowed slightly, with the Platts NYMEX RBOB front-month contract against the Brent frontline contract closing at $18.55/b on April 23, down slightly from $19.64/b the previous week.

Demand for butane blending largely faded across the complex for both coasters and large cargoes. In particular, butane large cargoes were assessed at 85% against physical naphtha on April 23 from 90% the previous week. Demand is not expected to increase in the week starting April 26, as RVP requirements in the summer gasoline specification do not accommodate butane participation in the blending pool.

Ethanol

European undenatured ethanol physical spot prices climbed 3.2%, or Eur18.75/cu m in the week to April 23, at Eur604.75/cu m FOB Rotterdam, on an increase in mobility across the EU as well as a continued rally in feedstocks prices.

T2 ethanol prices hit a six-month high in the week to reach levels last seen in October prior to the announcement of partial lockdowns across the continent, as mobility across Europe's five largest economies rose by eight percentage points in the week to April 18 and averaged 31.6% below pre-pandemic levels, with the UK leading the gains, Google data showed.

The continued rally in wheat and corn prices as global balance sheets remain tight is also expected to support the ethanol market. "Fundamentally, high grain prices are set to continue for the next two years on significant tight ending stocks, which will be more evident in the USDA's new crop report in a few weeks' time," a source said. "Squeezed ethanol crush margins, rallying US and Brazilian ethanol prices, the vaccination push and better weather reducing infection rates are all very bullish even if demand doesn't pick up as expected."

S&P Global Platts calculated the ethanol average price per RON at $17.83/cu m April 23, up from $15.41/cu m a week earlier.

High octane components

MTBE participants broadly expect demand to strengthen in the week ahead as the market continues to move further into summer peak driving season and as some countries in Europe continue to emerge from coronavirus restrictions.

However, the emphasis on non-oxygenated gasoline blends -- favouring components such as reformate -- might slow MTBE's demand recovery. Additionally, MTBE stock levels in Europe were understood to be balanced to well supplied.

In addition, some sources say they expect the export market to continue to play an increasing role in the European MTBE balances as volumes are utilized for exports to the US and Latin America.

Overall, demand expectations are positive, with sources seeing more upward than downward potential.

The subdued spot trading activity in the MX market is expected to continue in the week commencing April 26, with sellers also keeping a close eye out for any signs of an workable arbitrage out of Europe to the US. However, mixed xylenes supplies are limited, which is keeping their premiums over Eurobob gasoline close to $80/mt, showing relatively high octane value from both TX or MX and blenders expected to look elsewhere for any octane booster needed. Sentiment in the toluene market indicates premiums are likely to remain bullish this week, as tight supply due to ongoing production outages is balanced against solid demand. Toluene premiums close to $140/mt over EBOB exclude the product from the gasoline blending pool.

Toluene and MX approximate prices per RON were at $7.74/cu m and $7.39/cu m respectively April 26, from $7.43/cu m and $7.72/cu m a week earlier.