EMEA OCTANES: Key market indicators Jan 24-28

As COVID-19 restrictions in the UK are set to ease in the week started Jan. 23, demand for gasoline and its blending components is expected to increase, which could see ethanol prices regain their losses, and gasoline blending economics improve.

Gasoline, naphtha, butane

Northwest European inland gasoline demand has been down month on month thus far in January, while ongoing run cuts have limited production. The Northwest European gasoline market has been supported by strong export demand to West Africa, where depleted stocks are being replenished. The high demand is set to continue, with around 1.96 million barrels of gasoline set to load in Northwest Europe for export to West Africa in the week started Jan. 23, up 1.02 million barrels on the week.

The European naphtha market has remained strong following healthy demand from gasoline blenders and petrochemicals, despite caution following the geopolitical situation in the Ukraine. The front-month naphtha NWE crack spread reached fresh six-month lows, closing at minus 40 cents/b on Jan. 18, prior to rebounding to 25 cents/b on Jan. 21.

A lack of demand in the olefins market has subsequently dampened naphtha demand in Asia, resulting in a narrowing of the East-West spread. The front-month East-West spread narrowed $2/mt week on week, and assessed at $6/mt Jan. 21. Europe continued to be one of the only geographies with beneficial cracking margins. Despite this, a rediversion of cargoes had been heard from Northwest Europe to the Mediterranean based on more prompt demand.

Butane CIF NWE large cargoes closed at 98.42% of naphtha Jan. 21, steady throughout the week and assessed up $17.25 at $776.75/mt in outright terms. Demand for blending remained at a low level. This should persist while the percentage of naphtha for CIF seagoing is above 100% -- it is currently at 104%. Butane FOB seagoing remains steady at 118% of naphtha.

Ethanol

The European T2 ethanol FOB Rotterdam benchmark has been rangebound within Eur900-1,000/cu m since the start of 2022, with the market currently seen as balanced to slightly long yet susceptible to further volatility, sources said.

European undenatured ethanol physical spot prices dropped 5.3% in the week to Jan. 21 with paper market values following suit and dropping 4% on average, with the prompt months leading the weekly drop.

Several market sources saw little in terms of changing fundamentals to warrant earlier gains during the month and as a result, saw the weekly drop in prices as a natural reversal of those gains.

However, Kpler shipping data estimated a significant jump in ethanol imports into Northwest Europe in January, which are set to rise 66% on the month and 74% on the year to amount to 122,301 cu m compared with market expectation of 50,000-60,000 cu m.

While ethanol demand over December and January was seen as healthy as more European countries followed the UK's easing of COVID-19 restrictions over the coming period, ethanol demand is expected to improve further with the market now looking to the restart of the UK mothballed plant Vivergo expected in first-quarter 2022 to bridge the structural deficit.

MTBE/ETBE

The European MTBE market was looking relatively tight, while the backwardated structure last week did not allow much room for high stocks. Despite bearish blending economics, there was healthy demand for MTBE, which remained a relatively cheap octane booster, given the high prices in reformate, aromatics and ethanol. Demand also remained strong for ETBE. The increased ETBE production to meet demand weighed against MTBE manufacturing, adding to the tight MTBE market.