European gasoline blenders are offering out blending components rather than finished-grade gasoline on the back of a contango pricing structure in the gasoline market, industry sources said this week.
Prices of octane boosters such as reformate have been firming in recent days, despite a slowdown in aromatics arbitrage demand from China and soft fundamentals for finished-grade gasoline, as a steep contango structure in the European gasoline market meant a lot more carry likely for components.
On Wednesday, the May/June Eurobob gasoline swap spread was assessed at minus $11.50/mt, while June/July was at minus $4.50/mt. The nearest backwardation was only evident on the July/August timespread, assessed at $2.50/mt, in a sign of market confidence of peak summer demand in July.
The structure was largely unchanged from Tuesday, when the May/June spread was at minus $12/mt, and the June/July spread was at a minus $2.25/mt, while July/August was backwardated at $3/mt.
Values for finished-grade gasoline have been experiencing downward pressure on the back of limited arbitrage demand from the structurally long Northwest European complex, as well as a largely oversupplied market globally, with only mild demand from the US Atlantic Coast.
"[There is] just too much gasoline everywhere," said one gasoline trading source, adding that most gasoline complexes globally remained well supplied and that the market needed "the summer demand to kick in."
"The components by themselves have more value than the finished grade. One reason is the finished grade market is very, very long," another European trader said.
Full-range, heavy and Light Virgin Naphthas and reformate were heard to be attracting buying interest for storage.
According to one trader, value for Light Virgin Naphtha was below low double-digit premiums to the May swap and, despite the fall in finished-grade gasoline values, has not experienced significant downward pressure.
Heavy grades of naphtha -- which are a primary feedstock for reformers, refinery units whose main output is reformate -- were heard to be tighter, with a second Europe-based market participant reporting a bid/offer spread of $10/mt-$20/mt over the May CIF NWE naphtha swap.
Previous buying interest from blenders and reformers as well as transatlantic arbitrage flows had supported the value of heavy grades.
CHEMICAL END-USERS
Looking at the chemical end-users market -- which typically compete with gasoline blending for certain components -- European solvent naphtha distributors have been achieving good margins, sources said, despite stable demand as truck price increases in April and May have outstripped the rise seen in outright gasoline C9 prices in April.
Chemical distributors have said this week they have not been achieving the sorts of price pass-through that they felt was due given the pre-buying seen in April.
"Increases [this week] yes but [they are] not so easy as buyers expected the increases and they tried to buy before so they are out of the market," a distributor said.
Outright gasoline prices climbed by $50-60/mt in April.
Meanwhile, FOB Rotterdam solvent naphtha barges -- which price at a premium to gasoline -- climbed by as much as $35 to $570/mt last month, before closing April at $545/mt, according to S&P Global Platts data.
However, solvent naphtha truck prices climbed Eur80/mt to be assessed at Eur600/mt free-delivered NWE, Platts data showed, indicating that the rise in upstream barges was more than met by the rise in truck prices.
Solvent naphtha -- with a research octane rating of 110 -- is one of a number of aromatic component options that can be blended into gasoline. It competes with higher octane components such as MTBE, with a RON number of 115, and ethanol with a RON number of 108. Compared with other aromatics, such as toluene, with a RON rating of 115, and xylene at 112, it contains less octane.
Although the blending of aromatics into European finished grade gasoline is a maximum of 35%, solvent naphtha C9 tends to have fewer restrictions when blended into non-oxy gasoline for export to the US or for some African.
In outright prices, Eurobob gasoline barges were assessed at $465/mt Wednesday, from $464.50/mt. The physical CIF NWE naphtha cargo market was assessed at $382.75/mt Wednesday from $387/mt Tuesday.
