Values for key gasoline blending components rose sharply in northwest Europe last month as supply tightened on the back of firm gasoline demand across the region and the road fuel's widening premium over naphtha prices.
Octane supply in northwest Europe tightened in the last two weeks of the month, pushing premiums to physical gasoline barges to their highest level of the summer so far. Premiums for 99 Ron reformate over Eurobob oxy gasoline barges widened by $16/t to $106/t through July, while heavier 103 Ron reformate premiums to oxy increased by $26/t to $171/t. Alkylate premiums to oxy rose by $60/t over the same timeframe to $403/t, having peaked at $420/t in the penultimate week of July.
Market participants said firm demand for gasoline across northwest Europe throughout the summer so far is one of the reasons for tighter octane supply, as it could have encouraged refiners to blend their own high-octane components to make finished-grade gasoline, limiting the amount available to the local market.
Another factor is that gasoline has maintained a strong premium to naphtha in northwest Europe in recent weeks, supported by firm seasonal demand for the road fuel and plentiful supply of naphtha, with the latter largely down to weak demand from the petrochemical sector. Eurobob oxy barge premiums to cif northwest Europe naphtha cargoes averaged $306.61/t in July, peaking at $342.50/t on the final day of the month, up from $269.20/t in June.
A wide gasoline-naphtha spread encourages blenders and refiners to maximise the amount of naphtha in the gasoline blend. But naphtha has a low octane rating, which increases demand for high-octane components in order to meet quality specifications.
The causes behind this year's tight octane supply mirror those that led to a crunch last summer. Strong gasoline demand, all-time high gasoline-naphtha spreads and a lack of Russian supply contributed to prompt octane shortages, pushing values to their highest on record. A key difference is that last year's octane crunch took place earlier in the year at the end of May and beginning of June. This year, the tightness has emerged later, which could be down to lacklustre demand for European gasoline from the US and west Africa through much of the summer period.
With the driving season most likely past its peak, further substantial rises in octane values may be limited this year. US gasoline demand has not breached 9mn b/d since the end of June. And European refiners may already be thinking about switching production away from summer blends, in preparation for the transition to winter specification gasoline at the end of September. Winter gasoline typically requires fewer high-octane components due to higher Reid vapor pressure (RVP) limits.
