NWE gasoline blending margins off lows seen on omicron worries

An increase in demand for gasoline despite ongoing omicron uncertainty has buoyed blending margins in Northwest Europe even though there are supply issues with components such as butane and naphtha, market sources said.

"The blending side had been bad recently with the absolute lack of demand in Europe, but gasoline demand in Europe is on the rise again. We cannot get too excited though, it is all relative," a Europe-based blender said.

"Blending margins and blending demand are at a low base point, but they are increasing day on day. The trajectory for blending margins and demand is good."

A proxy for blending margins, the front-month FOB AR Eurobob swap was assessed $1.50/mt higher at a $14.75/mt premium to the equivalent naphtha swap on Dec. 8, having risen from a $3.25/mt discount on Nov. 30.

Meanwhile, the increase in the broader oil complex from the lows seen on the initial omicron uncertainty has seen European gasoline prices rise in tandem.

European benchmark Eurobob was assessed at $700.25/mt on Dec. 8, up $3.75/mt on the day to its highest since Nov. 25, the day preceding the start of the recent crash in oil markets.

Components

Issues with the supply of blending components such as butane, naphtha and octane boosters have been reported, which could be supportive for the gasoline market.

Butane values have been boosted by poor refinery output in Northwest Europe and fewer US cargoes making the voyage across the Atlantic, sources said.

Platts CIF NWE seagoing butane was assessed Dec. 8 at $754/mt, or 106% of the value of naphtha.

"Butane [demand] has been a bit bouncy," a market source said.

Elsewhere, the European naphtha market has seen increasing tightness, particularly at the prompt, amid supply restrictions.

Bad weather in the Black Sea has caused delays loading product for the Mediterranean, with problems on the railways in the north of Russia adding to the problems, sources said.

Around 118,000 mt of naphtha was expected to be delivered from the Baltic to Northwest Europe over the week starting Dec. 6, down 29,000 mt from the prior week, Kpler shipping data showed.

Additionally, naphtha supply from the US Gulf Coast has been limited as Asia has been attracts more US naphtha on higher olefins margins.

The front-month January NWE naphtha crack was assessed at $1.20/b on Dec. 8, up 50 cents/b week on week despite crude oil rising more than $3/b over the period.

Petchems

In terms of petrochemical blending components, the European mixed xylenes market has been tight due to slow reformer rates and exports to the US, reducing the amount of available product in Europe, according to a trader.

MX's premium to gasoline was up $10/mt on the day Dec. 8, at $60/mt.

In the European toluene market, no material was available on a spot basis, sources said, adding that demand remained healthy. The premium of toluene to gasoline was assessed at $109.25/mt on Dec. 8, up $19.25/mt on the week.

Demand was outpacing supply in the European MTBE market, with availability limited amid a backwardation in the market that was deterring market players from holding high stock levels.

Demand from European gasoline blenders for MTBE has been healthy in recent days, according to market participants, even as the gasoline blending margins were relatively low.

"Good demand for this time of the year," a trader said.