Spreads between different grades of gasoline have widened sharply in the past month with the value of octane soaring.
High refinery runs have created an over-supply of straight-run naphtha — a low-octane gasoline-blending component. With so much naphtha finding its way into the blending pool, demand, and the relative price for high-octane components such as reformate and alkylate, have soared.
Argus weekly prices for alkylate and reformate on July 1 were at premiums of $495.75/mt and $317/mt to Argus Eurobob non-oxy gasoline respectively – compared with premiums of just $136.50/mt and $14.75/mt at the start of the year. Eurobob non-oxy gasoline represents 95 RON gasoline once up to 10% bioethanol has been added – bioethanol itself being an octane booster. The actual Eurobob product will therefore have a lower octane rating of typically 92-93 RON, and cheaper than 95 RON as a result.
Octane tightness has had a significant effect on reference prices used by the market. In the UK for example, the wholesale and retail markets are tied to the Platts 10ppm cargoes CIF assessment. Critically that assessment reflects a minimum of 95 RON octane and is ‘oxygenate free’. However, the UK moved to gasoline with a minimum of 10% ethanol in 2021 and refiners and importers will produce and blend to a blendstock with a lower octane rating (92-93 RON) and then add 10% ethanol before distributing it. Argus estimates that the specification that UK refiners and importers produce is at least $60/mt (4ppl) less than the specification of the reference price used to determine wholesale and retail prices in the UK. In effect, the reference price used by the UK market has become dislocated from the product sold by refiners and importers to the inland market.
Refinery margins in Europe have risen while those in the retail industry have remained more modest. Argus assessed gasoline premiums to benchmark North Sea Dated crude, captured by refiners, were at almost $20/bl (10.5p/l) on April 1, up from $1.82/bl (1p/litre) on 1 March, although premiums rose above $56/bl, or 30p/l, in the early days of June. Retailer margins have remained mostly in single digits however.