ANALYSIS: USGC CBOB discount to conventional averages 30 points YTD
Houston (Platts)--15Nov2012/203 pm EST/1903 GMT
The US Gulf Coast CBOB discount to conventional gasoline on Colonial
Pipeline has averaged 30 points year to date, 50 points higher than 2011,
Platts data show.
CBOB is a suboctane blendstock that is sold as is at the wholesale
level and then splash blended with ethanol at tank farms and then supplied to
retail outlets, while conventional finished gasoline is ready-to-use gasoline
produced at the refinery.
In theory, CBOB should typically carry a nominal discount to
conventional in order to compensate for the reduced octane, but sometimes
differences in pressure can cause this relationship to deviate from its
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According to Platts data, CBOB was assessed higher than conventional
three times so far this year: April 4, August 31 and September 4. Only on
April 4 did CBOB climb above conventional, assessed 35 points higher, as a
result of supply issues, but on two consecutive trading days, August 31 and
September 4, CBOB was assessed 2.5 cents and 5 cents higher, respectively.
The spike in CBOB's relative value to conventional on those dates is
explained by a difference in RVP for both grades, as CBOB was assessed with a
7.8 RVP and a 9.0 RVP for conventional.
Normally, both grades are measured with the same RVP in order to minimize
any spec-related differences that could skew prices disproportionately.
In 2011, there were 19 trading days when CBOB held a premium to
conventional, but none of the premiums were attributed to physical factors
such as RVP, instead resulting from supply-and-demand issues. For those 19
days, the CBOB premium averaged 2.65 cents/gal.
According to the latest Energy Information Administration figures,
production of CBOB has gradually risen over the last few years, just as
conventional production wanes and ethanol becomes a permanent part of the
overall US gasoline pool.
The latest EIA and industry estimates show that ethanol blends have
already hit their maximum 10% volumetric blend wall in gasoline, and CBOB and
ethanol together now form more than 97% of gasoline supplied to the US.
With further changes such as a bump in the federal ethanol blending
mandate to a maximum 15% slated to trickle through the supply chain, it can
reasonably be expected that the CBOB market will continue to grow at the
expense of conventional gasoline, and the price relationship might well
have some volatility in store as the market re-aligns with changes in demand.
Some observers in the industry point to the shrinking CBOB discount as a
sign that the industry is gradually adapting CBOB as a replacement benchmark
for the region.
--Subhan Usmani, email@example.com
--Edited by Jason Lindquist, firstname.lastname@example.org