The premium for T2 ethanol over Eurobob gasoline moved $16.07/cu m higher Wednesday to a near five-year high of $232.74/cu m, amid a softening gasoline complex and continuing price support in the European ethanol market.
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Platts T2 ethanol assessment increased by Eur0.75/cu m to Eur580.50/cu m ($642.32/cu m) Wednesday while the Eurobob gasoline assessment fell from $560/mt to $542.50/mt ($409.59/cu m), widening T2's premium over Eurobob to the highest margin since November 22, 2010.
Since the two products have different densities, the spread is measured in cubic meters for valid comparison.
The Northwest European gasoline complex has softened in recent days, in a downward trajectory which persisted due to closed arbitrage opportunities to the US Atlantic Coast, limited arbitrage volumes to West Africa and lower RBOB/Brent values.
Eurobob gasoline barges dropped to an assessed value of $542.50/mt FOB NWE Wednesday, down from $560.00/mt. It's the lowest outright price since February 11, when they were assessed at $534.25/mt.
Pressure on prices also came from lower crack spreads for Eurobob gasoline barges, with the physical crack to Dated Brent dropping to a multi-month low of $19.00/b down from $19.95/b -- the lowest value since May 29, when i8t was assessed at $18.50/b.
"In a way, NWE follows USA," one trading source said, referring to the lack of arbitrage opportunities to the strategic outlet in the US Atlantic Coast for Europe's net-long gasoline market.
On Wednesday, the US Energy Information Administration reported a 322,000-barrel increase in stocks in the US East Coast for the week ended August 14 to an overall 59.535 million barrels.
In contrast to gasoline, European ethanol has seen sustained price support throughout much of Q2 and the summer months as imports into Europe and the closed production facility Ensus, in the UK, have limited supply levels in the region. The year-to-date average for T2 ethanol by Thursday was at Eur526.39/cu m compared with Eur477.23/cu m for the same period in 2014.
In the mandated market of Europe, the record premium of ethanol over gasoline was expected to have limited impact. "There is no discretionary demand with the exception of Sweden's E85" one trader said, adding: "The blend margin makes no difference in the EU unless it surpasses the penalty for not blending, which will never happen."
A second trader said that the high premium would have "some effect, but very limited."