Chemical Conversations: Octane Blending Outlook

This podcast is delivered by Argus’ chemical experts using data and insights from the Argus Octane Blending Outlook service.  

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Cassidy: Hello, thanks for joining this "Chemicals Conversations" podcast. In our chat, we'll be discussing the Argus Octane Blending Outlook, formerly known as the Argus MTBE Outlook. Roel, this service not only has a new name, but a new format. Can you tell us more about that? What's changed and what's the benefit for our readers?

Roel: First, we converted all our petrochemical outlooks to a new PowerPoint template. This gives our subscribers an easy-to-read analysis and products covered and driving factors affecting these markets. Hyperlinks are included in the monthly PDF to easily access our Argus direct website and data files. The new format also allows us to dynamically add fresh content and visuals based on customer feedback and market changes.

Second, and more importantly, we decided to rebrand the Argus MTBE Outlook to the Argus Octane Blending Outlook as we were already forecasting other blending components. Our MTBE Outlook subscribers needed to understand how the MTBE markets compare to other competing blend stocks, so we included these new forecasts a few years back. During the rebrand, we also created a new forecast for other competing blend stocks in Europe and blend value calculations for a variety of products.

In the new Octane Outlook, we added import and export data for a variety of octane components in different regions. With this new feature, market participants can get a heads up of what products are coming to their region. This new product is unique as it brings data from other Argus services for us to make decisions on the octane markets. Not only our MTBE subscribers benefit from the new change, but other companies that produce or consume octane components could benefit as well.

Cassidy: When you look at the data included, it touches on gasoline, crude, alkylate, reformate, aromatics, and more. What do you see as the most interesting trends among these different markets right now? Are we seeing any demand changes ahead of the Northern Hemisphere entering peak driving season?

Roel: The most interesting change in the octane markets happened in 2022 as the industry saw the shortage of high-octane components because of increased naphtha supplies and changes to U.S. gasoline summer specifications from the EPA. This caught many companies off guard, especially the aromatics markets, as they were now seeing more value for their product in the gasoline pool instead of as a chemical feedstock. As with many markets, global companies can adapt to this change.

We started to see increased trade of octane components ahead of the U.S. 2023 summer gasoline season and how refiners and blenders dealt with high naphtha supplies also improved in 2023. While the octane markets in 2023 were not as tight as summer of 2022, it is still a much different environment than pre-2022 levels. But then again, markets have been very volatile since the COVID pandemic. Going into the summer of 2024, blenders have been importing aromatics and other blend stocks for the sole purpose of gasoline blending. This is helping offset imbalances caused by heavy U.S. refinery maintenance that was scheduled between January and April this year. Also, the need to blend low-octane naphtha has also been reduced ahead of the summer gasoline season. So again, the octane markets will be better supplied ahead of 2024, but still not as supplied as previous years, pre-2022. This trend should continue in the years ahead, but any disruptions going forward could affect.

Cassidy: Could you share an example in the last few years of some of the usual relationships and spreads between key markets turned upside down and kind of surprised the industry?

Roel: If you go back several years, U.S. gasoline to the naphtha spreads peaked at 50 cents per gallon during the year. This was the average for most years, but in 2022, it peaked at 170 cents per gallon and in 2023, it peaked at 162 cents per gallon. This made a combination of blending low-octane naphtha with high-octane components very lucrative. The levels of premium gasoline, regular gasoline and price differential really blew up during this time. So, what happened is that many blenders began to inquire about aromatics that are normally used as chemical feedstock, such as ethylbenzene and cumene. This forced some aromatic producers and buyers to become well-informed of the gasoline markets as it affected their sales and their feedstock purchases. There were other relationships that contributed to the octane tightness as well. We saw diesel prices swing to a large premium over gasoline prices, shifting valuable N+A naphtha supplies into the production of diesel. This affected the availability of referment for gasoline blending or for the conversion to aromatics. MTBE producers also benefited from the octane tightness as U.S. gasoline exporters were seeking MTBE due to limited stocks of other octane components.

Cassidy: So long term, I know you see gasoline and naphtha differentials narrowing. What do you think is driving that?

Roel: We're expecting the gasoline to naphtha differential to narrow as from one end, you have the industry seeing better access to blending components, which will keep fuel prices more stable. Then on the other end, demand for naphtha from the olefin space will support naphtha's prices. So, we should see pricing squeeze from both directions and those differentials narrow.

Cassidy: With these recent additions, I understand there's a new workspace that clients have access to. What is this exactly and what can clients do there?

Roel: We recently launched a new workspace for the Argus Octane Blending Outlook for clients to see real-time news, prices and insights from our experts, and to keep the data files centrally located for you. It also includes a three-month snapshot of our octane blending forecast. The workspace is a very valuable tool for our subscribers as you get quick access to the recent headlines or download the most recent publications or data. Several charts are included that show our current forecast and prices driving the octane markets.

Cassidy: Thank you Roel for sharing your insight on the octane blending components markets. Thank you everybody for listening.

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