The front-month mogas/naphtha swap spread -- the premium of the front-month Eurobob gasoline swap to the equivalent CIF NWE naphtha swap -- widened to a four-month high of $77.50/mt Thursday, up from $74.75/mt Wednesday, further boosting demand for naphtha from gasoline blenders.
The last time the front-month mogas/naphtha swaps spread was assessed wider was September 10, when it reached $78.25/mt.
According to naphtha trading sources, strong demand from gasoline blenders has helped keep the Northwest European naphtha market balanced amid healthy supply and steady demand from petrochemical end-users.
"There is good demand for gasoline grades of naphtha as gasoline is still strong," a naphtha trader said.
"I know there is demand from blenders so it doesn't seem unrealistic that Light Virgin Naphtha would fetch $15/mt premiums and even $20/mt premiums if it is very good quality," another naphtha market participant said.
The CIF NWE naphtha physical cargo was assessed $11/mt higher on the day at $293.75/mt Thursday, and assessed at a $2.25/mt premium over the February CIF NWE swap, up from a $1.50/mt premium the previous day.
The European gasoline market has outperformed other European road fuels over the month, bucking the seasonal expectations that typically see the European gasoline winter price lower relative to diesel on account of the higher RVP and lower quality EN228 specifications than in the summer.
Month-ahead EBOB barge crack swaps reached $14.90/b over Brent Frontline Futures at Thursday's European close, their highest in five months, compared with the 10 ppm ULSD equivalent front-month crack swap that fell below $6/b for the first time since May 2009.
The strength of the European market comes amidst a closed arbitrage to the US, typically a net receiver of European barrels, implying the strength to be more a factor of demand strength versus supply shortages.
Furthermore, amidst a sustained market contango across the prompt forward curve, the incentive to defer inventory sales of higher quality gasoline stocks has provided price support to the unseasonal strength in demand from mild winter road conditions and relatively cheap prices at the pump, further supporting cross barrel cracking margins for refiners and the strength of gasoline blendstock component markets.
