Viewpoint: US aromatic octane demand set to soften

  • Market: Oil products, Petrochemicals
  • 29/12/23

US aromatics demand for boosting gasoline octane may decline in early 2024 as values for low-octane, paraffinic naphtha moves closer to gasoline.

High-octane demand is set to soften should naphtha's discount to gasoline narrow and gasoline prices remain low. But this should not preclude seasonal pricing support for aromatics beginning in March and April.

US naphtha exports have increased from a three-year low at 191,000 b/d in August 2022 to 320,000 b/d in September 2023, based on Energy Information Administration (EIA) data. Rising exports have reduced US naphtha inventories and narrowed the naphtha-gasoline spread to -$111/t in first-half December, nearer the historical 2019 average of -$105/t and down from the all-time widest at -$621/t in June 2022.

Ethylbenzene (EB) and cumene (CU) gasoline blending have supported prices for feedstock benzene (BZ) for two years, as naphtha's price relationship to gasoline on the US Gulf coast decoupled from the 2019 historical average. The gradual recoupling of suboctane naphtha and gasoline prices to the historical 2019 average is set to continue as naphtha exports resume, moderating high-octane EB and CU demand for gasoline blending next year.

EB and CU gasoline blending demand pushed feedstock BZ higher in 2022, resulting in all-time high at 705¢/USG ($2,110/ metric tonne) in June that year, just as the naphtha-gasoline spread reached a record (see chart). A similar phenomenon occurred in September this year when benzene hit a high for the year of 429¢/USG ($1,284/t), after the naphtha-gasoline spread reached an historically wide monthly average of -$422/t in August.

As paraffinic naphtha exports decline, domestic stocks build, lowering prices. Blenders then purchase this cheaper naphtha to utilize in gasoline as a sub-octane, which spurs demand for EB and CU high-octane blendstock and for feedstock benzene in turn.

In first-half December, the naphtha-gasoline spread has narrowed to just over -$100/t as naphtha exports increase. Less suboctane placed in the US gasoline blending pool in the form of naphtha moving into 2024 means less need for high-octane components, including BZ-derived blendstocks EB and CU to meet octane specifications.

EB and CU as blendstocks will continue to drive demand for benzene in 2024, but as seen in the last two years, peak benzene prices in summer are set to weaken further on reduced octane demand.

Prices for toluene and mixed xylenes (MX) have also been supported by gasoline blending for the past two years, helping to mitigate weak demand for downstream paraxylene (PX) and polyethylene terephthalate (PET) caused by lower prices from Asia and unfavorable operating margins for selective toluene disproportionation (STDP) units to produce PX.

Demand for toluene and MX into downstream PX and further downstream PET could increase in 2024. Ongoing delays at the Panama Canal could cause issues in receiving PX or PET imports at the US Gulf coast, potentially boosting domestic PX and PET production.

A drought at the Panama Canal has been causing shipping delays between Asia and the US Gulf coast, with some ships rerouting around South Africa's Cape of Good Hope to avoid upwards of 40-day waiting periods at the canal.

On top of Panama Canal delays, the threat of US restrictions on Asian bottle-grade PET resin imports could unfold in 2024. A US investigation into Asian recycled PET imports could result in an antidumping duty on all Asian PET imports. Asian countries accounted for over 60pc of US PET imports in January-October 2023, according to Global Trade Tracker data.

Should BZ sustain a premium over toluene and MX prices, STDP operations could kick back in to produce PX and downstream PET to offset any possible shortages of PET imports. STDP operators typically require a 30¢/USG BZ-toluene margin to justify running units.

US octane and suboctane gasoline spreads $/t

Asia PX vs US BZ and TOL $/t

US light naphtha exports versus spot price

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