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NWE MTBE factor rebounds from all-time low but demand remains weak

By Miguel Cambeiro

June 15 - The European methyl tert-butyl ether (MTBE) factor has recovered from all-time lows against Eurobob gasoline the week ended June 11 of 1.0255 but global demand remains weak and blenders are shunning oxygenated gasoline components in favor of non-oxy components such as alkylate and reformate, according to sources. (See related chart: Gasoline Eurobob FOB ARA: July 2009 - June 2010).

The factor was seen at 1.055-1.06 the week ending June 18, but most market sources were not convinced that there would be any significant improvement to levels seen at the end of May, when the factor was assessed at around 1.13, according to Platts data on May 24.

Eurobob gasoline barges were assessed at $708/mt FOB ARA, according to Platts data on June 14.

Market sources argue that in the absence of an overall improvement in gasoline demand, blenders have more options with non-oxy components as opposed to MTBE if US mogas demand suddenly spikes.

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At the start of the week ended June 11, blenders shunned the octane-booster despite gasoline blend values of 1.15 seen in the market. Rising energy and gasoline prices weighed heavily on the value of MTBE pushing the factor down. (See related chart: MTBE FOB ARA: January 2009 - June 2010).

As to the question over whether the increase in the factor represents a floor, one producer said the week ended June 11: "We have hit the floor. These prices should make new demand. I mean 1.03! That's gotta be a no-brainer. At 1.03 it's just too cheap if you have blend margin."

However, sources were still worried about the oversupply in the region. "There is no tightness. The market is long," the producer said.

With the factor having reached an all-time low 1.0255 versus Eurobob gasoline barges, sources expected this to be the floor at which buyers would come back in but the problem would be gasoline demand which was described as poor.

"If you buy at 1.0255 you will make money, if you can sell it," an industry source said the week ended June 11. "That's the important bit. We need a long hot summer. It only takes a few tenders to change this completely. I don't believe that demand is worse than it was in December [2009]."

The same source estimated the average factor in December to be around 1.20-1.21.

In addition, improved blending economics have not helped attract renewed buying interest as the European naphtha-gasoline spread has widened. Sources blamed the massive supply overhang of MTBE in the region.

The physical spread between CIF NWE naphtha cargoes and Eurobob gasoline barges was assessed at $45/mt on June 14, widening by $18/mt since June 1 when the spread was $27/mt, according to Platts data.

Early the week ended June 11 the spread was seen trading at around the $45/mt mark.

A wider naphtha-gasoline spread typically encourages the use of more naphtha in gasoline blends

Since blending more naphtha results in a low-octane base gasoline, a wider spread also in theory benefits octane-boosting components such as MTBE, reformate and alkylate.

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