Mexico, other markets pull up US MTBE

Author Steven McGinn

In the wake of the global Covid-19 pandemic, the devastation of demand destruction was clear when crude and gasoline prices crashed to historic lows.

Fuel demand worldwide tumbled as governments restricted transportation movements. With the drop in gasoline consumption, prices plunged across the board, including the gasoline additive MTBE.

MTBE lifts the octane content and is typically blended mixed with gasoline at the refinery, major distribution point, or sold neatly. MTBE is the final blendstock, but also quite crucial as it combusts lower-quality gasoline components for a more complete burn at the emission point.

The European MTBE market is established as the global benchmark, with pricing and production hubs in Singapore and the US Gulf coast also providing liquidity.

As the lockdown measures in Europe were enacted, MTBE demand fell sharply. Supply increased and prices fell to record lows, sliding below 50¢/USG fob Rotterdam for the first time since Argus began keeping records in 2000.

Across the Atlantic, where nearly every barrel is shipped to foreign consumer markets, US MTBE spot prices had fallen to the mid-60¢/USG range in April. This level had not been seen since before the fuel component’s prior American-made death sentence: the US Energy Independence and Security Act of 2007.

MTBE had fallen so low that for a brief time in April, prices of its feedstock methanol were higher. This was an event not seen since, well, 2007.

Because corn-based ethanol is used in the fuel tank of US drivers in place MTBE, US makers serve the world’s appetite for major markets. Essentially, US-made MTBE is a bellwether for the world’s thirst for fuel.

And as a parching result of coronavirus-led consumption cuts, MTBE producers — especially in the US — reduced rates

But with transportation movements slowly resuming across the world, US MTBE makers ramped up production toward the end of the second quarter. This is an indication that global gasoline demand recovery is underway

MTBE trade activity in every region has reawakened. Mexico and Brazil began loosening Covid-19-related movement restrictions this month, leading to higher demand for US fuel from these countries, both of which largely paused spot purchases from the US in May. 

Mexico City began to reopen in mid-June, while some states in Brazil lifted quarantine orders this month as well. Last month, Argus Mexico Fuels added daily US MTBE pricing into Mexico to complement its existing European numbers.

Singapore's monthly exports of MTBE rose close to a six-year high in May following the opening of an intra-regional arbitrage between China and Singapore.

Local MTBE prices in China rose following gains in crude prices and stronger gasoline demand.

European MTBE consumption is steadily increasing and prices have held firm over recent weeks.

As a result of those demand pockets coming back to the fray, spot MTBE prices in Asia, Europe and US have roughly doubled over the last few weeks. 

Many forecasts have the recovery in the global gasoline market taking a long, slow path. And it remains to be seen whether the economic devastation wrought in the first and second quarters of this year will re-emerge in MTBE demand centers, especially with hotspots emerging in Latin America.

What remains as the unknown factors are how drivers’ habits have adapted and what changes the Covid-19 pandemic occur in fuel suppliers and marketers across the world.

But for a look back to the future, the market should eye the oracle that is US MTBE production.

Argus global MTBE prices

MTBE  production

Click graph to view full scale

Learn more about the new daily US delivered MTBE prices included in our Argus Mexico Fuel Markets service.

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