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USGC octane prices slip as gasoline complex softens, exports dip

Highlights

US Gulf Coast octanes took a fall Thursday, softened by weaker gasoline prices and decreased exports.

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Of the blendstocks, alkylate saw the steepest day-on-day fall and was assessed by S&P Global Platts at pipeline gasoline plus 48 cents/gal.

The USGC gasoline differential to NYMEX August RBOB fell to a multi-month low Thursday on a build-up of supply as exports fell. Market players said this came from decreased exports to Mexico, which as a destination has been replacing Gulf Coast barrels of finished gasoline with product from China.

"The East has been eating typical Latin America shorts supplied by the USGC, even West Africa shorts," a regional market source said.

Alkylate is used to blend regular finished-grade gasoline exported to Mexico, and reformate is used to blend premium-grade gasoline exported to Mexico, a second regional market source said.

"PMI lately [has] not been buying as much finished grade ... from the USGC," the source said.

Alkylate demand was heard to be muted as regional supplies of gasoline accumulated on the lack of Mexican demand for Gulf Coast barrels.

Data released by the US Energy Information Administration Wednesday showed USGC gasoline stocks to be 3.8 million barrels higher year on year the week ended July 12.

Barges of the high-octane blendstock were heard to be seeking but not finding bids, while cargoes were diverted from the USGC as additional high-octane product was expected to land in the region this weekend, pressuring differentials.

A cargo of higher-octane Reliance-quality alkylate, typically at 93 octane, was sailing towards the USGC Thursday aboard the Energy Centurion, according to data from cFlow, Platts trade flow software. The ship is scheduled to dock Saturday.

In turn, isobutane has fallen this week as its premium over normal butane narrowed 50 points to 12.50 cents/gal Thursday, or 63.50 cents/gal. The premium widened to as much as 20.125 cents/gal last week and has been in double digits for 14 of the past 16 trading days.

Isobutane is used in the production of alkylate, a high-octane blendstock that has been in high demand following the Philadelphia Energy Solutions refinery fire in late June.

Reformate also took a fall Thursday, assessed 5 cents/gal lower day on day at pipeline gasoline plus 63 cents/gal.

Market players expected regional octanes to further fall until Mexico once again has eyes for Gulf Coast gasoline.

"But I think best netback for Mexico just switched to Europe," a third market source said.

The change in trade flow is not expected to be a long-term trend, and Mexico is expected to resume importing the USGC's gasoline and blendstocks.

"Those are just general long-term tends and normal arb location fluctuations, no imminent structural changes," a fourth market source said.

USGC RBOB was assessed 1.50 cents/gal lower Thursday at NYMEX August RBOB minus 3.25 cents/gal, the differential's lowest assessment against futures since May 18.

Benchmark USGC CBOB also fell Thursday to futures minus 16.50 cents/gal, down 50 points day on day, its lowest level since June 17.

--Sarah Raslan, sarah.raslan@spglobal.com

--Andrea Salazar, andrea.salazar@spglobal.com

--Seth Clare, seth.clare@spglobal.com

--Edited by Jennifer Pedrick, jennifer.pedrick@spglobal.com