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Mogas premium to naphtha at three-month low as gasoline demand slows down

https://www.chemnet.com   Jan 23,2015 Platts
The front-month mogas/naphtha spread has fallen to a three-month low after the gasoline paper market weakened on the back of reduced arbitrage demand while naphtha remained strong amid increased petrochemical end-user demand, trading sources said.

The front-month mogas/naphtha spread -- the premium of the front-month Eurobob gasoline swap to the equivalent CIF NWE naphtha swap, and a measure of blending margins -- fell $8/mt Wednesday to $48.25/mt Wednesday, the narrowest spread since October 10 when it was assessed at $47/mt, Platts data showed.

"Mogas/naphtha [spread] is still too narrow to incentivize blending," a trading source said.

The gasoline market has fallen in recent days as demand for the lower-octane higher-sulphur West African grade slowed amid a lack of other export outlets for the structurally long European market. This saw the front-month EBOB crack fall $0.30/barrel to be assessed at $5.10/b Wednesday.
The naphtha market has continued to strengthen this week, helped by demand from petrochemical end-users who have raised the proportion of naphtha they crack.

They had been maximizing the cracking of rival feedstock LPG for a large part of 2014 and ended the year with low levels of naphtha stocks.

In the paper market, the front-month CIF NWE naphtha crack hit its highest level in 16 weeks, assessed up 65 cents/b at minus $3.80/b. At noon London time Thursday, the February crack was heard at minus $3.75/b.

"Blending demand has slowed down significantly and LVN lost a lot of its value," an end-user said. "Theoretically, LVN could go into cracking."

According to a naphtha trader, it was possible petrochemical end-users might buy LVN as it "is long and propane strength means [petchems] are buying a lot more naphtha", adding that LVN has traded in the past 24 hours at a $12/mt premium over the delivery month-swap.

LVN was heard offered at mid-teens premiums mid-week, having been heard at low-to-mid $20s/mt premiums early last week when strong gasoline blending demand was bringing a lot of support to the naphtha market.
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