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EMEA octanes: Key market indicators - 4 May

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EMEA octanes: Key market indicators - 4 May

London —

Gasoline, naphtha and butane

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** European gasoline markets will see mixed fortunes in the week commencing May 3 as gasoline exports from Northwest Europe wane, but buyers pivot towards discounted Mediterranean gasoline, which remains heavily discounted to Northwest Europe. Commodity data company Kpler shows around 1.99 million barrels of gasoline are expected to be delivered from Northwest Europe to the US Atlantic Coast in the week commencing May 3, down 260,000 barrels week on week and the lowest weekly loadings since mid-March. Sources said the arbitrage across the Atlantic basin was less assured than during March, with opportunities open to some, but not all. Despite this, a recovery in export demand to West African markets will offer some support to Northwest European refiners and has helped buoy gasoline's relationship to crude oil. Exports out of the Mediterranean have helped balance the market in the region, which had seen demand soften in southern European markets, including Italy and Spain, and in the east Mediterranean markets of Israel and Lebanon. Tightness on the supply side and maintenance in the Middle East has seen some cargoes delivered from the East Mediterranean to the region. Cheap freight rates and an open arbitrage to Northwest Europe has seen gasoline delivered into storage tanks in the Amsterdam-Rotterdam-Antwerp region, helping clear any length in the Mediterranean. Kpler data shows that around 2.56 million barrels of gasoline were delivered from the Mediterranean to the ARA region during April, the highest monthly volume since January 2017.

** The European naphtha market saw tightening fundamentals over the last week of April, and the trend is expected to continue over the first week of May on weaker supply and growing demand, particularly for gasoline blending.

Specifically considering domestic blending margins, the front-month gasoline swap contract closed at a $70/mt premium over the equivalent naphtha on April 30. The average for the week was $69.625/mt, down from $70.46/mt the week before, while the level was close to seasonal norms.

US gasoline demand continued to lend support to domestic markets, including both gasoline and naphtha blendstocks.

Platts NYMEX RBOB front-month contract against Brent frontline closed at $19.85/b on April 30, averaging $19.05/b over the week, up marginally up $18.89/b the week before.

Naphtha was tight in the Mediterranean and in Northwest Europe, particularly as cracking demand was also still present despite LPG pricing at more competitive levels for the cracking grades.

**The butane complex in Northwest Europe turned more bearish, under pressure from an open arbitrage from the US bringing more cargoes across the Atlantic. FOB NWE seagoing butane fell by 5.3 percentage points against naphtha week on week, to be assessed at 78.7% of naphtha on April 30. However, CIF coasters strengthened by one percentage point against naphtha to 84.2% on April 30. CIF coasters, particularly those of high specification butane, continue to receive support from petrochemical buyers, with butane anticipated to be cracked at maximum levels in May. Blending demand is now absent due to the switch to summer blend gasoline.


** European undenatured ethanol physical spot prices climbed 2%, or Eur12.25/cu m, in the week to April 30, to Eur617/cu m FOB Rotterdam, coming off the intra-week high of Eur628.25/cu m on April 27 as buyers deemed levels fundamentally unjustified.

T2 paper market values were stable to slightly higher week on week, with the prompt loading periods rising the most, while July into October loading were on average 0.3% higher week on week.

The strengthening of T2 physical over paper narrowed the contango structure of physical versus second-month Platts futures from minus Eur26.25/cu m to minus Eur20/cu m; reducing the incentive to buy for storage.

The rally in ethanol feedstock prices continues to pressure ethanol crush margins, as Euronext's wheat and corn front-month future contracts climbed 9% and 4%, respectively, which continues to support T2 ethanol prices despite a lack of demand, market sources said.

Sources said the increase in ethanol prices to six-month highs was unjustified given Germany, Europe's largest ethanol consumer, has introduced a curfew, and most EU countries continue to have lockdown restrictions in place.

S&P Global Platts calculated the ethanol average price per RON at $18.01/cu m April 30, up from $17.83/cu m a week earlier.

High octane components

** European MTBE is expected to benefit from rising demand for gasoline in the immediate term, according to market players, as mobility restrictions continue to be lifted. Some sources said they expect a stronger market in June, making MTBE attractive to buy at current prices.

There were reports of some excess MTBE volumes in the ARA trading hub at the end of last week. A source said these volumes could be taken up by blenders as demand improves.

Overall, the European MTBE market was described as balanced, with some material available.

** Toluene's premium over Eurobob finished last week on a strong note, inching $5/mt higher week on week amid persistent tightness in Europe and healthy demand. At current premiums, toluene remains unattractive for gasoline blending as they currently sit well above blending value, sources said.

** Mixed xylenes supplies are less tight than toluene, but premiums over Eurobob gasoline were close to $70/mt in the week ended April 30, showing a relatively high octane value from both TX or MX, and blenders are expected to look elsewhere for any octane booster requirements. Traders said buying interest for MX use in the gasoline blending pool was at a premium of around $40-$50/mt over Eurobob.

** Approximate prices of MTBE, Toluene and MX per RON stood at $2.58/cu m, $7.98/cu m and $7.17/cu m, respectively on April 26, from $2.63/cu m, $7.74/cu m and $7.39/cu m a week earlier.