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Storm pushes USGC octane premium to 2-year high

14 Sep 2017, 5.20 pm GMT

Storm pushes USGC octane premium to 2-year high

Houston, 14 September (Argus) — The spread between 87 conventional (M grade) and 93 conventional (V grade) gasoline on the US Gulf coast following Hurricane Harvey was at its widest level since 13 July, 2015.

On 1 September, the spread between M and V grades widened by 24.25¢/USG in a single dayas the market took stock of damage from wind and flooding in the wake of Hurricane Harvey. The octane premium between the two grades went from +7.5¢/USG -- just below the average spread for the second half of August -- to +31.75¢/USG.

The octane premium peaked on 7 September at +47.875¢/USG, and has averaged +43.188¢/USG month-to-date.

Historically, octane spreads widen out in anticipation of a hurricane, reaching their zenith shortly after landfall. Buyers expect that blendstocks needed to make premium fuels will likely be in short supply following the storm, which starts the widening. When refiners do restart afterwards, they often focus on lower grades in order to get product back on the markets quickly.

In the days leading up to Hurricane Ike making landfall on 12 September, 2008, the spread between M and V grades widened from +6.5¢/USG to +20.25¢/USG. The spread reached its widest level shortly after, on 17 September 2008, at +30.25¢/USG.

Similarly, prior to Hurricane Rita's arrival in the US Gulf in September 2005, V grade carried a mere 3.75¢/USG premium over M grade for several days. But in the days leading up to the storm, that premium widened out to +29.5¢/USG over a 10 day period. Just four days after making landfall in Louisiana on 24 September 2005, that premium had reached +55¢/USG, its widest level on record.

This year's strong premium for higher octane gasoline over the lower conventional grade is being helped by a fairly tight gasoline blendstock market.

Production and transportation woes before, during and after Harvey's Gulf coast arrival in late August caused the 100 octane/1 RVP reformate market to rally from US Gulf coast gasoline pipeline mean (PLM) +46¢/USG before the storm to +70¢/USG this week. Alkylate, with a 92 octane and 5.5 RVP blend value rose from PLM +15.5¢/USG to +42¢/USG post-Harvey.

These blendstock levels have not been seen since a systemic octane shortage battered the Gulf coast markets in 2015. August of 2015 saw alkylate hit PLM +60¢/USG and reformate reach PLM +74.75¢/USG.

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