MTBE price falls exceed expectations despite crude losses

20 September 2012 14:07  [Source: ICIS news]

LONDON (ICIS)--Recent decreases in the price of European methyl tertiary butyl ether (MTBE) have exceeded the expectations of market participants, despite recent losses in the crude oil markets and energy complex, and could be the result of low seller confidence, sources said on Thursday.

The average daily price of MTBE has fallen by $164.50/tonne ($214/tonne), more than 11%, since 11 September. The greatest losses have come in the past two days, with the price falling by $120/tonne, almost 9%, since 17 September.

These losses coincide with significant decreases in energy complex, with Brent crude oil coming off by almost $9/bbl since 14 September.

However, while gasoline has more or less maintained its crack spread to crude oil during the recent decreases - a measure of the relative pricing between the two - the same cannot be said of MTBE. The MTBE factor against EuroBob gasoline has fallen from around 1.23 to 1.18 during the past week. Two week ago the factor value was 1.27. In other words, the MTBE price decreases have been proportionally greater than those of gasoline and crude oil.

While market sources offered various explanations, none were entirely sure as to the cause. The move is all the more baffling given that supply of MTBE in Europe is tight.

One producer suggested that the approaching switch from summer- to winter-spec gasoline has led sellers to anticipate a weakening of demand. Winter-spec gasoline requires lower levels of octane-booster, such as MTBE.

Another producer pointed to the steep backwardation on gasoline prices, which does not support gasoline blending, as a potential factor. With MTBE having been at strong levels throughout the summer, sellers may be looking to limit their exposure in case of further softening, the producer said.

In any case, the sharp decreases appear to be the result of a lack of confidence among sellers regarding the future strength of the market, with several offering aggressively in the spot market.

Nevertheless, the first producer believes sellers may have sold too low, and that prices could recover to some degree in the coming days.

“Octane is still good value, and naphtha is weak so it needs a strong octane component… [the decrease] was maybe overdone, I think it could come back up,” the first producer said.

($1 = €0.77)

By: Ross Yeo
+44 208 652 3214

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