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NWE mogas/naphtha spread at 6-week high on US gasoline, European naphtha

https://www.chemnet.com   Feb 27,2015 Platts
The front-month mogas/naphtha spread -- the premium of the front-month Eurobob gasoline swap to the equivalent CIF NWE naphtha swap -- widened to a six-week high of $64.75/mt Wednesday, up from $64/mt Tuesday.

The Eurobob gasoline paper market tracked the rally in the US RBOB, boosted by reduced gasoline supply in the US and short-covering ahead of the European refinery maintenance season, while the European naphtha market remained stable.

The last time the front-month mogas/naphtha was wider was January 9, when it was assessed at $68.50/mt, Platts data shows.

In the gasoline market, US Energy Information Administration data for the week to February 20 showed Wednesday a bullish 3.1 million-barrel reduction in gasoline stocks to 240 million barrels.

On the east coast of the US -- where cold temperatures have affected some refinery operations -- the fall was only 44,000 barrels, a sign the weather had also hit demand, sources said.

In the US Gulf Coast, where maintenance and strikes are still ongoing, stocks fell 272,000 barrels, while on the west coast -- where an explosion occurred at ExxonMobil's Torrance refinery on February 11 -- stocks were 1.249 million barrels lower on the week.

In Europe, sources said expectations of the maintenance season starting in March, especially at the region's reforming units, would contribute to short covering ahead of the seasonal turnaround.

"The positive gasoline price response to the larger-than-expected draw in gasoline stocks appears sensible and will have been further supported by the prospect of lower refinery production over the next few months," BNP Paribas analysts said.

In the meantime, the European naphtha market stabilized Wednesday amid steady demand from end-users in Northwest Europe, tightness in the Mediterranean naphtha market, firm buying interest in Asia and a narrowing propane/naphtha spread, trading sources said.

In the paper market, the March CIF NWE crack swap edged marginally higher to minus $3/barrel from minus $3.10/b at market close Tuesday and the March/April CIF NWE naphtha backwardation was trading barely changed around $7.25/mt-$7.50/mt.

According to naphtha trading sources, demand for lighter grades of naphtha from gasoline blenders, which had started to pick up mid-January, continued to support the NWE naphtha market.

"The wide mogas/naphtha incentivizes blending at the moment but we hear that there is enough supply of LVN to satisfy that," a trader said.

Another market participant said offers for LVN are increasing in line with demand and are now in the high teens. "For open-spec I don't see strong demand or surplus product being offered -- it feels fairly balanced," he said.

While many trading sources said blending demand was mostly for gasoline bound for West Africa, one trader said there was also demand for naphtha to be blended into grades of gasoline suitable for the US.

Another market participant said the NWE naphtha market is balanced at the moment, but it could come under pressure if gasoline blenders stop buying naphtha.

"People continue to bid for blending qualities but it could change quite quickly if blending demand stops," he said.
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