EMEA light ends: Key market indicators this week

The European light ends complex has continued to find strength in consistent demand amid the bearishness of refiners and other commodities.

GASOLINE

**The gasoline crack spread has recovered to a four-week high, to be assessed at $4.25/b on Sept. 25 as positive market sentiment supported gasoline and the wider crude oil complex. Amid ongoing concerns over surging coronavirus cases in some Northwest European countries, the crack is unlikely to recover to pre-pandemic levels, where it was assessed at $7.15/b a year ago. Despite this, continued export interest to the US as well as West Africa should buoy the crack spread during October.

**A strong appetite for gasoline in West Africa will continue to offer buying interest for gasoline in the Northwest European market. Data intelligence company Kpler shows that exports from the region to West Africa will more than double on the week to Oct. 2, to 3.55 million barrels, from 2.55 million barrels in the previous week. The end to monsoon season in the region marks an uptick in mobility as people travel more domestically. The demand for gasoline volumes may further boost the UKC-WAF freight rate, which saw an uptick in rates on Sept 25, to be assessed 2.5 points higher to Worldscale 97.5. The premium unleaded 10ppm FOB AR barge, which is typically delivered to the region, has averaged a $4.40/mt premium to the Eurobob during September, up from $2.61/mt during August.

**The Mediterranean gasoline market should continue to see lacklustre demand, as rising coronavirus cases and some travel restrictions are imposed. In particular, the East Med will see weak demand as Israel enters a national, three-week lockdown, which sources say could be extended further. To balance this, sources have pointed to poor refining margins to limit gasoline supplies available to the prompt market, which has seen liquidity in the cargo market in the region dry up towards the end of September. Total's Grandpuits refinery in France will be converted into a biodiesel plant. Hellenic's Aspropyrgos refinery is expected to resume operations in October, after a maintenance shut down in September which may help ease the supply-side tightness.

NAPHTHA

**European naphtha strengthened over the week mainly on short supply. However, demand is increasing sources said. Specifically, the naphtha CIF NWE crack spread against ICE Brent crude oil November futures moved to positive territory on Sept. 25. to close at 40 cents/b, highest seen since December 2017. This was the peak of a rally over the week on expectations of further minimization of refinery runs, while the outlook for the following month remained positive.

**Supply from the US Gulf Coast spiked, potentially on low freight for the USGC-UKC MRs route of $12.4/mt, and displacement from the winter gasoline blending pool by butane. The arriving volumes reached approximately 176,000 kt for September, comparing to 92,000 in August, highest monthly volumes seen since September 2018, Kpler data showed. Despite the increase however, prices did not reflect a significant impact.

**As the ban on Libyan oil exports was lifted, the producer of largely light and sweet crude grades, high in naphtha yields could put pressure on European naphtha. However, amid low production rates, and political instability in the country, the market was yet to react. Looking at the demand side, petrochemicals producers were becoming increasingly interested in naphtha feedstock grades as the alternative propane and butane were becoming more expensive, on heating and gasoline blending demand respectively. Naphtha CIF NWE October contract against the equivalent propane CIF NWE reduced its premium 14.6% over the week to close at $48.25/mt on Sept. 25.

**Demand for arbitrage volumes ex Asia, remained limited, particularly as the market considered freight economics unfavourable. The trend was however expected to revert, mainly in light of strong olefins margins East. The October East-West spread -- the premium of the CFR Japan naphtha cargo swap over the CIF NWE equivalent -- was assessed at $21.5/mt, on Sept. 25., 19.4% up on week.

LPG

**In the propane market in Northwest Europe, prices strengthened amid poor supply levels putting the physical market at a premium to paper. Platt Propane CIF NWE large cargo traded at a $2.5/mt premium to the equivalent front month swap. We expect the shorter to supply to remain in the coming week as refineries maintain lower production.

**US LPG exports to Europe and the Mediterranean so far in September have fallen marginally from August as exports from the US picked up in the back end of September on falling Mt. Belvieu prices and European tightness. Expected volumes of US LPG arriving into Europe in September are estimated at about 580,000 mt, according to Kpler, with 248,000 mt bound for Northwest Europe and 332,000 mt for the Mediterranean.

**FOB West Mediterranean butane coasters have strengthened to a four-month high as a percentage to naphtha on the back of market tightness driven by a shortness of supply in the Mediterranean. Platts Butane FOB West Med coaster was assessed at $427/mt Sept. 25, representing 113.5% as a proportion of naphtha. This is the highest value against naphtha since May 21 when the market was assessed at 113.8%.

**Butane in Northwest Europe was also subject to the same market tightness as gasoline blenders supported the demand side and poor availability of product supported prices. Platts butane CIF NEW seagoing coasters were assessed at $399/mt Sept. 25, representing 106.1% as a proportion of naphtha, the highest value against naphtha since Feb 10. Market tightness is expected to persist across the butane complex in the coming weeks.