EMEA LIGHT ENDS: Key market indicators for Nov 15-19

Higher domestic refinery output has led to softer sentiment in the gasoline market, while naphtha retained support on the back of re-opened arbitrage East, and LPG due to limited arbitrage volumes from the US.

Gasoline

** The Northwest European gasoline market began the week on a bearish note, as increased supply coincides with a reduction in prompt demand owing to a steeply backwardated market structure. Recent tight supply-side fundamentals have been reversed with increased refinery output following multiple refinery turnaround. Volumes are available for prompt and early December delivery, but prompt demand is lacking, according to market sources. European gasoline benchmark Eurobob was assessed by S&P Global Platts at a five-week low of $783/mt Nov. 12, while the November/December spread was in a $39/mt backwardation.

** In exports, the arbitrage between Northwest Europe and the US Atlantic Coast remains closed. There are currently no vessels expected to load from NWE to the USAC in the week commencing Nov. 15, according to Kpler shipping data, and total exports for November are predicted to be 1.61 million barrels, down 3.78 million barrels on October and marking a fourth consecutive month of declining exports. The lack of exports has caused gasoline stocks in the US to deplete, with gasoline inventories falling by 1.6 million barrels in the week to Oct. 29, according to Energy Information Administration data.

** Mediterranean gasoline remains at a substantial discount to its Northwest European counterpart amid tight supply-side fundamentals. Strong export demand to West Africa, East Africa and the Persian Gulf persists, but an increase in supply is expected as maintenance at Portugal's 220,000 b/d Sines refinery is due to end.

Naphtha

**The European naphtha market sees support off the back of reopening arbitrage to Asia, after remaining uneconomical for several months. Europe to Asia shipments loading in November had amounted to at least 1.137 million mt, compared to 1.195 million mt for October total, and the volumes are expected to rise further over the course of the month. The improvement in the sentiment was also reflected in the December East-West spread -- the premium of the CFR Japan naphtha cargo swap over the CIF NWE equivalent – which was assessed at $16.75/mt, up 50 cents/mt from $15.25/mt the week before and highest since March 26. As another indicator of the favorable arbitrage East, the key Mediterranean to Japan LR2 freight was assessed at a 2.45 million lumpsum on Nov. 12, after spiking to 2.5 million the day before that to a multi-month high level.

** The implications for the domestic market are balancing dynamics, as the softer sentiment observed over the week in the downstream petrochemicals complex, particularly on the propylene front, were offset by the surplus volumes generated moving to the East. Additionally, LPG retains premiums over naphtha equivalent feedstocks which in turn leads to any incremental cracking demand being still absorbed by naphtha. The front month propane swap contract closed at as $51.25/mt premium against naphtha equivalent on Nov. 12, down from a $70.75/mt premium the week before.

** LPG premiums over naphtha however, and particularly butane over naphtha blendstocks has redirected some domestic blending demand to the latter with blending margins, however, remaining tight on the back of overall high price levels of blending components. The front month gasoline swap contract closed at a $5.74/mt premium against naphtha equivalent on Nov. 12, down from a $8.25/mt premium the week before.

LPG

** Northwest European propane retains tightness particularly off the back of heating demand, while the inland market saw a decline in trading activity off the back of less available volumes in the spot market.

** The tightness remains largely supply-driven where limited LPG arbitrage flows from the US coupled with limited spot volumes originating from domestic refineries support current price levels. Shipments of LPG from the US to Europe in November are indicated at 507,000 mt so far, compared to 573,000 mt in October, commodity data company Kpler said Nov. 12. Of the expected November total, 210,000 mt is expected to go to Northwest Europe and 297,000 mt to the Mediterranean. There is still time for more volumes to be booked for November arrival, while 53,000 mt of LPG is already scheduled for December arrival so far. In terms of origin, 401,000 mt is coming from the US Gulf Coast this month and 106,000 mt from the Atlantic Coast, all from the Marcus Hook refinery in Philadelphia.

** The butane complex in Northwest Europe saw support, despite a marginal decline in blending interest, particularly as some market participants contemplated a potential flow of NWE volumes to the Mediterranean where demand is stronger. The FOB NWE coaster closed at 113% of naphtha on Nov. 12, up from 110% of naphtha the week before.

** The Mediterranean enjoys robust demand with the largest volumes share absorbed by North Africa where butane is utilized for commercial applications and the remainder flowing into the gasoline blending pool. The FOB Mediterranean coaster butane market was assessed unchanged at week on week 117% of naphtha on Nov. 12.