An uptick in demand for European gasoline from the US was set to support it and higher octane blending components in the week commencing May 10, as were easing mobility restrictions in some European countries.
Gasoline, naphtha and butane
The fallout from the outage in the Colonial Pipeline system in the US will likely buoy the Northwest European gasoline market, where cracks have recently reached 22-month highs. Also, the spread between Platts NYMEX RBOB and Brent futures was at the highest level since Aug. 31, 2017, at $21.73/b on May 5.
Some 212,000 mt of Northwest European gasoline were destined for the US Atlantic Coast in the week beginning May 10, up from 184,000 mt the week before, according to commodity data company Kpler, while 119,000 kt was sett to arrive over the week starting May 17. Also, 79,000 mt was set to arrive on the USAC from the Mediterranean over the week starting May 17.
While the Mediterranean gasoline market has seen stronger dynamics -- better demand and declining stock levels, the arbitrage to Northwest Europe was open, though flows arriving from Libya could balance out the pull from the North.
Naphtha has seen support from the strength in the gasoline complex. A potential ban of Russian light distillates exports in coming was providing support -- a large proportion of European naphtha supply originates in the Baltics.
The front-month June naphtha crack averaged minus $2.23/b over the week to May 7, up from minus $2.72/b the week before.
Blending margins rose last week, with the front-month June gasoline swap averaging a $73.42/mt premium to the equivalent naphtha contract up, from an average of $70.70/mt the week before.
The Northwest European butane complex underperformed naphtha last week, as increased supply was met with largely stable levels of demand. CIF large cargoes fell to 80.6% of naphtha on May 7, down 0.8 percentage point week on week.
The market continued to be driven exclusively by interest from petrochemical buyers, with little to no gasoline blending demand -- in line with seasonal trends.
Most short positions for May were filed in April, largely through the acquisition of US cargoes. Some 157,000 mt of butane crossed the Atlantic into Northwest Europe in April, according to Kpler, the largest monthly flow in data going back to 2014.
The CIF butane coaster market has seen higher-grade prices remain elevated over higher isobutane cargoes, the former being more suited as a feedstock in the cracking pool. S&P Global Platts assessed the NWE CIF coaster market at 82.3% of naphtha May 7, from 84.2% the previous week.
Ethanol
While EU ethanol demand continued to be subdued due to mobility restrictions, the continued rally in global corn prices on unfavorable weather conditions in Brazil and the US was supporting T2 prices.
Front-month Euronext corn futures rose 9% to contract highs, turning ethanol crush margins from corn negative week on week and settling at minus Eur42/cu m as of May 7.
Market sources expected corn prices to continue rising on lower estimates for Brazilian corn yields in the highly anticipated US Department of Agriculture's world estimates monthly report, to be published on May 12, squeezing ethanol crush margins further and potentially supporting T2 ethanol prices.
While physical and paper ethanol markets diverged last week, the lifting of curfew in Spain on May 9 and France being expected to ease restrictions on May 19 might be justification for the rally in paper market values over the week, sources said.
High octane components
There was a continued expectation of increased demand in fuel ethers following last week's strength across ETBE and MTBE on the outlooks for renewed domestic travel possibilities with EU lockdowns easing and the anticipation of more announcements regarding international travel.
European mixed xylenes remained unattractive for gasoline blenders at their recent premiums over Eurobob. Offer level were around $75/mt over Eurobob at the end of last week, with some producers saying they are not willing to sell at those lower levels. Meanwhile, gasoline blending values for MX remained around a $30-$35/mt premium.
