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Early butane blending into gasoline unlikely to provide significant price support

HOUSTON, August 16, 2016 (PCW) -- In late June, some refiners opted to capitalize on relatively cheap butane (see graph, below) and begin making winter-grade gasoline much earlier than the usual production period of early August.

Butane is always a part of the gasoline blend, but in winter, greater amounts of it can be used and the resulting higher RVP product can be sold into the market beginning September 1. Butane demand can typically go from 70,000 b/d in the lower RVP summer gasoline blend, to as high as 700,000 b/d for the winter blend.

This year, even as gasoline demand looks extremely robust, gasoline production continued to outpace that, resulting in historically high inventories that have stymied substantial gains in gasoline prices.

But even with increased and earlier-than-average use of butane in gasoline, it is unlikely that spot butane prices will receive much support. RBOB and CBOB gasoline prices are weak, inventories and production remain high even with record demand and winter will see driving demand slow.

Exports had a good run early in the year before narrow international arbs finally set in, resulting in LPG cargo cancellations in June and onwards. There are a few dynamics that could throw a wrench in the works: some refiners have announced run cuts due to weaker gasoline cracks and refinery turnaround season begins in September.

PetroChem Wire’s Refinery Focus editor Robert Sharp has been on top of these issues for several weeks (read his weekly blog here).

While these could tighten the market somewhat, Robert contends there will only be a modest increase in prices. Ultimately, absent a significant cutback in production – not just in butane, but also gasoline – spot prices are likely to remain soft in the near term.

 

PCW’s Refinery Focus covers refined products, blendstocks and aromatics prices. Its editor, Robert Sharp, is a recognized expert in these markets with more than 35 years of experience. Find out more about the Focus and sign up for a free trial HERE.

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