US nat gasoline prices spike on short covering

OREANDA-NEWS. March 27, 2015. EPC natural gasoline prices on the US Gulf coast have surged this week, spiking up 31? to 144?/USG, from Monday to market close Thursday, with the market found short at the end of the month.

Outright trading was thin at the start of the week, as traders shifted focus to end-of-the-month March/April time spreads, which were trading at a 1-1.25? backwardation.

Activity grew on Wednesday as discussion emerged that several participants were short in the market. March delivery prices reported large gains. Outright delivery prices shot up to a high of 127.125?/USG and the March/April backwardation blew out to 5?/USG. The rising price was also supported by rallying WTI futures.

By early Thursday, natural gasoline outright prices had risen to 134?/USG, and March/April time spreads were pegged at an 8.5-9.5? backwardation.

In the afternoon the backwardation rose to 12-13?/USG, and March deliveries priced as high as 143.75?/USG and 144?/USG.

Several rarely-done locations spreads between the Conway hub in Kansas and the Gulf coast markets were done as well, but they failed to alleviate the market squeeze. The spreads supported midcontinent prices, however, where it traded at an 8? discount to the Gulf coast on Wednesday and 9.75-11? discount on Thursday.

US natural gasoline markets have drawn strength from firming light naphtha prices in northwest Europe over the last two weeks. Some traders use Mont Belvieu natural gasoline to hedge light-paraffinic naphtha positions, which is traded at a differential to EPC natural gasoline on the Gulf coast, forming a basis link between the two markets. These hedged positions can cause trading demand to increase at the end of the month when participants must balance their books.

However, this month, a tight global naphtha market and softer US naphtha prices relative to Asian and European markets opened the arbitrage out of the US and tightened domestic supply as end-of-the-month trading spiked.

Favorable cracking margins for naphtha in northwest Europe and Asia have given the product a competitive edge over LPGs and bolstered naphtha demand. Natural gasoline prices on the Gulf coast have firmed alongside light naphtha values since 16 March despite volatility in energy futures.

Natural gasoline and naphtha compete for gasoline blending and feedstock-demand as well.