EMEA octane: Key market indicators July 5-9

Rising demand for gasoline within Europe is expected to continue offering support to blending components while petrochemicals demand has further boosted naphtha and butane.

Gasoline, naphtha, butane

Higher demand has driven a steepening backwardation in the prompt gasoline paper market in Northwest Europe, and helped a recovery in gasoline's relationship to crude oil. Sources forecast a continued gradual recovery in gasoline demand as more countries ease coronavirus restrictions with the UK -- Northwest Europe's biggest gasoline short market -- expected to start relaxing restrictions from July 19. The front-month Northwest European gasoline crack spread was assessed at $11.20/b on July 2, strengthening 52 cents/b on the day and the first value above $11/b since May 10.

In the Mediterranean, demand for premium unleaded, finished grade gasoline is expected to continue rising in countries including Spain and Italy, as well as in the east Mediterranean gasoline market, sources said. On July 2, Platts assessed the July Med cargo swap with a $6.75/mt premium to the equivalent August swap, up from a $4/mt premium two weeks ago. This trend is likely to continue into July, as pan-European travel increases into the holiday season and international air travel out of mainland Europe remains severely restricted.

The European naphtha market continued seeing an upside while further support is anticipated the new trading week as well. Strong demand both stemming from petrochemical cracking but also rising gasoline blending tightened the complex. Limited supply only added further to the bullish market sentiment.

The strength was particularly reflected in terms of the crack spread, which closed at minus 60 cents/b on July 2, strengthening from minus $1.80/b the week before. This level was the highest seen since March 3. During late-morning July 5 trading, the spread was seen as high as minus 5 cents/b.

Looking at domestic blending margins, the July front-month gasoline AR swap contract against the equivalent naphtha closed at a $55.75/mt premium on July 2, down from a $61/mt premium week on week.

At the same time, the structure at the prompt was also seen substantially steepening, reflecting the tightness.

The July/August CIF naphtha swap spread was assessed at $11.75/mt on the day, widening from $9/mt week on week.

The European butane complex strengthened July 2 amid strong petrochemicals demand, sources said. Demand for butane in Northwest Europe remains good, mainly due to petrochemical cracking demand. Supply has been pressured by weak US imports, sources said.

Ethanol

European undenatured ethanol physical spot prices edged slightly higher in the week to June 2, with T2 ethanol assessed Eur4/cu m higher at Eur649.50/cu m FOB Rotterdam.

T2 prices have been rangebound over June and continue to trade within the Eur645-670/cu m range into July, as the uptick in demand on easing lockdown restrictions across the Continent is offset by high stock levels built during the first half of 2021.

While sources said France and Spain are seeing a significant uptick in ethanol demand, lower-than-expected blending rates in Germany despite an improvement in land mobility were continuing to be seen as a possible headwind for T2 demand and prices.

Prompt demand is expected on the introduction of E10 fuel in Sweden and the UK in August and September, respectively. However, sources said they are still not seeing a major uptick and the focus has shifted to the fourth quarter in the T2 paper market, which has narrowed the Q3-Q4 spread to plus Eur18/cu m from plus Eur24/cu m over the week on stronger Q4 values. A currently closed US arbitrage into EU is expected to "start opening up in Q4 and possibly before" if T2 ethanol prices continue to be supported.

High octane components

The European MTBE market saw support from the wider energy prices in the week to July 2 as both crude and gasoline prices pushed higher. However, amid unchanged fundamentals the premium to gasoline was unchanged on the day, hovering at $113.50/mt, down $6/mt on the week to July 2. Looking forward, blending economics are expected to remain unfavorable due the steep discount of reformate to MTBE, yet demand is expected to hold firm predominately supported by South America, sources said. The reformate FOB AR Barge was assessed at a $97.50/mt discount to the MTBE FOB ARA on July 2, down 50 cents/mt on the day.

Looking at the ETBE market, ETBE has benefited from bio ticket demand, encouraging the use of fuel ether despite poor blending margins, sources said.