The Northwest European MTBE factor is likely to retain its unseasonal strength until the end of 2011 and into the new year despite relatively weak demand for the octane booster, according to market sources.
The MTBE factor -- which measures the strength of MTBE relative to Eurobob gasoline on a FOB ARA basis -- was assessed at 1.2490 on Thursday, 0.1509 higher than the monthly average of 1.0981 for December 2010.
The average for the month so far is 1.2272, and if the factor retains similar strength until the end of the year, December is set to be the strongest month in 2011.
"I can't see it [the factor] shifting in either direction, probably a good way into January... supply remains tight, [we're] not going to see people sell an awful lot," one trader said.
A second trader said, "I think product is backwardated going into March or so... I do not see the current strength easing any time soon."
MTBE is traditionally weaker in the winter months, as gasoline demand dips following the end of the summer driving season and other blending components that have less favorable characteristics for use in the warm summer weather become more attractive.
In addition, a shrinking gasoline-naphtha spread, which has discouraged the use of octanes alongside naphtha in gasoline blending, and the current high MTBE factor, have caused incremental demand from blenders to fall off, sources said.
The gasoline-naphtha spread was assessed at $26.25/mt Thursday, and has averaged $34.25/mt in December so far, whereas the average in each of the previous six months has ranged between $52-71/mt.
However, inventories throughout Europe are depleted, leaving sellers just able to cope with this reduced level of demand, sources said.
The first trader said there is "good demand, [but we're] running close to empty."
A number of factors have combined to create this situation of depleted inventories.
Since late in the second quarter, European steam crackers have been running at lower utilization rates due to punitive cracker economics, which has reduced the amount of MTBE feedstocks on the market and limited the amount of MTBE that is able to be produced.
Current contract steam cracker margins in Europe have turned negative for the first time in 2011 following a dip in olefin contract prices for December.
This feedstock shortage was compounded by recent low water levels on the Rhine, which hindered transportation of feedstocks from crackers to MTBE production plants on Northwest Europe.
External resupply has also been limited, as swing production in the Middle East continues to go mainly East and a period of prolonged backwardation in the European MTBE market has left participants with little incentive to store product in recent months.
"It's very unlikely that we'll see factor at 1.15 again in the near future," a third trader said, adding that the factor is probably supported around the 1.20 level on current fundamentals.
