US Gulf Coast October Benzene Contract Settlement Split as Pricing Periods Diverge
U.S. benzene prices surged through September as stronger gasoline and octane economics increased the value of benzene in the fuel pool.
At the same time, an unusually prolonged October contract settlement process highlighted a divergence in the pricing periods used by market participants.
The U.S. Gulf Coast October benzene contract price settled on Oct. 9 at 527-544cts/gal ($1,577.31-1,628.19/mt), with a midpoint of 535.5cts/gal ($1,602.75/mt), according to Chemical Market Analytics by OPIS, a Dow Jones company. Not all parties involved in the settlement were in agreement.
The October settlement process also took significantly longer than usual. Historically, the contract price settles by the second business day of the month. October negotiations continued until Oct. 9, leaving benzene-linked derivative markets, including styrene and polystyrene, without a final monthly feedstock reference for several additional business days.
A major factor behind the 17ct/gal spread was the use of different volume-weighted pricing periods by participants in the settlement.
“The exceptionally strong gasoline and octane markets in the second half of September impacted spot benzene and led to a large split settlement,” said Peter Feng, vice president of North America Aromatics at Chemical Market Analytics by OPIS.
The traditional 10-business-day October contract price window ran from Sept. 15-28. Data showed 39 transactions totaling 970,000 bbl during the period, according to PetroChem Wire by OPIS. Prices ranged from 526-575cts/gal and generated a volume-weighted average of 543.97cts/gal.
A broader 30-day calculation captured 53 October-delivery transactions totaling 1.338 million bbl. Prices ranged from 455-575cts/gal and produced a volume-weighted average of 527.18cts/gal, effectively 527cts/gal, PCW data show.
Houston/Texas City delivery accounted for 725,000 bbl, or 74.7%, of traditional-window volume, while Lower Mississippi River deliveries represented 245,000 bbl, or 25.3%.
Gasoline Pull Drives Benzene Higher
The sharp difference between the two pricing calculations occurred because benzene was moving rapidly higher during September.
September benzene opened the month around 473cts/gal before reaching a peak of 580cts/gal on Sept. 24, according to PCW. The month-to-date average reached 491cts/gal, up 47cts/gal from August.
The increase was driven by stronger gasoline prices and resulting octane economics rather than a shortage of domestic benzene supplies.
Gasoline crack spreads moved above $55/bbl against low inventories, while RBOB averaged about $3.32/gal during September. WTI crude started the month near $90/bbl and rose as high as $105.83/bbl on Sept. 15 before retreating below $96/bbl.
That environment significantly increased the value of ethylbenzene and cumene as gasoline blending components. Both are produced using benzene as a feedstock.
“There have been loads of cumene and ethylbenzene going into the gasoline pool,” a U.S. benzene trader said on Sept. 23, adding that blending values were commanding premiums of more than 200cts/gal over RBOB futures.
“Benzene feels cheap,” the trader said in comparison to the strength in ethylbenzene and other octane components.
More than 400,000 bbl of spot ethylbenzene was traded into gasoline blending during September. Calculated benzene breakeven values exceeded $6.50/gal through ethylbenzene and about $6.60/gal through cumene.
The strength of that blending demand is important because underlying chemical derivative demand remained relatively soft.
Furthermore, domestic benzene production was little changed in September, with about 9% of North American capacity lost to outages. Refineries were operating at 95.2% utilization during the last week of September, according to the U.S. Energy Information Administration.
Imports also offered limited near-term pricing relief despite the widening U.S. premium. The U.S.-Asia spread averaged more than $350/mt during September and exceeded $500/mt around midmonth. No South Korean cargoes to the U.S. were fixed for September loading as inventories in mainland China remained critically low and product was instead shipped there.
U.S. spot benzene prices have weakened from September’s peak since the start of October as energy futures decline. On Friday, October spot benzene traded at 535.5cts/gal DDP HTC. November spot benzene traded on Oct. 8 at 515cts/gal DDP HTC.
Reporting by Marlon Homero Vinueza, mvinueza@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com