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USGC Reformate Falling With Inventory High, Export Interest Low: Trade

Mar 31, 2016

Gulf Coast reformate barges were flirting Wednesday with dipping below 40 cents above pipeline gasoline for the first time since last August as inventory of US blendstocks remains higher than March 2015 levels. 

Market sources placed the value of reformate barges FOB Houston for early April at Colonial Pipeline conventional gasoline plus 40 cents/gal to plus 41 cents/gal early Wednesday. 

That marks a drop of at least 3.5 cents from the Tuesday assessment at pipeline gasoline plus 44.5 cents/gal. The last time the blendstock sank through a differential at plus 40 cents/gal was last August 31 at pipeline gasoline plus 39 cents/gal. 

Reformate reached its 2016 high February 17 at 65 cents over pipeline gasoline. In contrast, the 2015 high was 91 cents over gasoline from July 10-17. 

NO BOOST FROM BLENDING 

Traders in blendstocks have had little opportunity to capitalize on the seasonal rise in values tied to gasoline blending for summer specifications, market sources said. Blenders were heard to stock up on reformate, alkylate and other blendstocks in January and February when outright prices were atypically low due to sagging support for basis Colonial Pipeline gasoline. 

"Summer is already over," a US refined products source said. "It just seems to me like there is an overall length in octanes right now. The tanks and the terminals are all full, and there aren't really any exports." 

China customers in the past have sought Gulf Coast reformate when values were low, but that does not appear to be happening this year, market sources said. 

"The arbs to China are shut, I think," a second US refined products source said. 

In US petrochemicals markets, the gasoline blendstocks toluene and mixed xylene prices have seen little movement amid thin liquidity. The aromatics have lost support with reformate trending cheaper, and supplies in those markets also are seen as high. Expectations for stronger blending demand for toluene and mixed xylene have not been met, and that could translate into cheaper spot pricing for those products, aromatics market sources said. 

RANGEBOUND OUTRIGHTS SEEN IN AROMATICS 

Spot toluene pricing has been rangebound within $1.94-$2.04/gal FOB US Gulf Coast, while spot mixed xylene pricing has remained within the $1.93-$1.98/gal FOB USG. Toluene was assessed at $1.94/gal FOB USG Tuesday, and mixed xylene at $1.98/gal FOB USG. 

Market participants had been prepared for gasoline blenders to shop ahead of the summer peak driving season for toluene and mixed xylene. which can be extracted from reformate. 

However, blending demand hasn't met expected levels, leaving excess supply in both markets. That supports strategies of not removing the petrochemicals from reformate and shipping reformate to Asia, trade sources said. 

Reformate, the product of low-octane naphtha fed to a refinery's catalytic reformer, usually runs at a stout premium to gasoline because it is coveted as a high-octane, low-RVP blendstock. Platts assesses reformate at 0.5 to 2.5 RVP and 95 to 110 octane, with 1-RVP, 100-octane reformate standing as the most-traded variety in the Gulf Coast barge market. 

Toluene and mixed xylene are at 1.36 RVP and 0.3 RVP, respectively. Each has an octane of 103. 

Meanwhile, reformate outright prices have been running about 35 cents/gal below where they were at this time in 2015. The outright had dropped eight of 13 trading days through Tuesday, when it fell 3.24 cents/gal to $1.7444/gal. 

MARKET FOR REFORMATE REMAINS LONG 

"The market seems well supplied," a third US refined products source said. "It seems long, and that is evidenced by the pressure on prices." 

US Energy Information Administration data points to higher blendstocks inventory. 

The agency does not break out reformate or other intermediate products. Its data shows US blendstocks inventory -- excluding CBOB and RBOB and a few niche products -- averaged 63.40 million barrels in March. In March 2015, stocks the same category of US blendstocks averaged 62.74 million barrels.