EMEA octanes: Key market indicators

Expectations are for a revitalized gasoline market in the coming days, ahead of warmer weather and relaxed travel restrictions, though price declines in key octane markets suggest the picture of recovery is still not certain. Growing demand for gasoline in the US, Africa and Mediterranean countries is yet to filter down to MTBE, MX and toluene markets.

Gasoline, naphtha and butane

**The Northwest European gasoline market will find strengthening support as demand is set to increase in the UK, and in the US, which is a key outlet for exports. Sources said that, with improving weather and easing coronavirus restrictions, gasoline demand in the UK will increase gradually to above pre-COVID-19 levels. An uptick in gasoline demand in West Africa will also offer support. Commodity data company Kpler showed around 3.07 million barrels of gasoline is expected to be loaded from Northwest Europe for delivery to West Africa in the week to May 30, up 300,000 barrels on the week and the fourth consecutive weekly increase in loading volumes.

**Exports to the US are set to rise amid a combination of increasing demand and tight supply-side fundamentals domestically. Despite optimism building over higher consumption on both sides of the Atlantic, gasoline's relationship to crude oil has remained steady. In the Mediterranean, gasoline demand is expected to rise in Italy and Spain, which have further eased coronavirus restrictions and relaxed some rules on tourism.

**Sources said that arbitrage flows from the Mediterranean to Northwest Europe would also clear remaining length in finished grades of gasoline. Commodity data company Kpler shows around 2.49 million barrels of gasoline is expected to be loaded in the Mediterranean for delivery to Northwest Europe during May, stead on the month.

**Demand in the European naphtha market remained supportive over the previous week, while it is expected to see a stable rise, particularly off the back of rising gasoline blending demand.

**Considering domestic blending margins, the front-month NWE gasoline swap contract against equivalent naphtha closed at a $64/mt premium on May 28, marginally down from a $68/mt premium the week before.

**As demand from the US has also been particularly supportive, this was reflected in the arbitrage interest, commonly approximated by the levels of the Nymex Rbob swap contract against Brent frontline equivalent. Particularly the spread closed at $21.24/b on May 28, marginally up from the previous week when it was $20.81/b.

**Petrochemicals producers, however, had also participated in the boost in naphtha buying activity over the previous week, particularly as the settlement of downstream ethylene and propylene contract prices for June was approaching.

**The butane complex in Northwest Europe was stronger as a proportion to naphtha as supply began to tighten compared with levels seen in early May. The Northwest Europe FOB coaster was assessed at 76.5% of naphtha May 28, up 3.7 percentage points on the week. In addition, the corresponding CIF coaster was up 2.7 percentage points against naphtha, assessed at 77.1% May 28. Despite signs of tightening supply, demand continues to be slightly depressed, with buyers displaying little haste to acquire volumes.

Ethanol

** European undenatured physical spot prices moved 1.3% higher, or Eur8.50/cu m up in the week to May 28, and was assessed at Eur645.25/cu m FOB Rotterdam as buying interest resumed following a week of prices being rangebound between Eur633/cu m-Eur638/cu m on thin trading activity.

** T2 paper market values moved lower throughout the curve with the prompt June loading shedding the most, and was assessed 2.1% lower at Eur650/cu m. The physical spot versus second-month futures contango structure narrowed to minus Eur21/cu m compared with minus Eur37/cu m a week earlier which is expected to slow buying interest as storage economics become less appealing.

** While sources see an uptick in ethanol demand reflecting land mobility improving in the week to May 23 by 7 percentage points to hit seven-month highs, according to Google data, high stock levels continue to offset the rise in demand several sources added.

** Rallying EU corn prices continued to eat into EU ethanol producer crush margins, with Euronext's front-month corn futures trading as high as Eur275/mt on May 28, with simple ethanol crush margins standing at minus Eur30/cu m from breakeven a week earlier, which is expected to add to T2 price uncertainty sources said.

High octane components

**The European MTBE market remained balanced in the week to May 25, with the assessed price increasing to $753.25/mt. Despite signs of growing demand, sellers found no urgency to shift product ahead of the summer period, with some participants expecting an offset driving season into the latter parts of the year.

**ETBE FOB ARA levels climbed $13/mt on week to reach $1,014.50/mt, on the back of a stronger fuel ethers market and lower volatility in upstream prices. Nonetheless, ETBE continues to face a slow spot market, with limited activity being heard over the week. As such the premium of ETBE over MTBE values maintained its stability on the week at $261.25/mt.

**The toluene premium to gasoline dropped $14/mt on the day May 28. A TDI production facility is expected to be online by the first week of June, with tightness in Europe's prompt market likely to ease as a result. The MX market remains in the doldrums, with little incentive to trade despite demand overtures from the gasoline blending complex.