OREANDA-NEWS. Strong octane demand could push toluene prices above benzene by the second quarter of 2016, as refineries ramp up for summertime blending.

Benzene usually commands a premium to toluene, but throughout much of 2015 strong octane demand supported higher prices for spot toluene, making production economics for toluene to benzene conversion units unprofitable. Thtis led to the shutdown of many STDP and TDP units.

Only late in the year, as tightening domestic supply and fewer imports pushed benzene higher, did benzene return to a 20?/USG premium over toluene. A handful of STDP units, which produce both benzene and xylenes, subsequently ramped up production rates from operating lows of 50pc, but TDP units remain shut as economics are still poor.

Toluene held its highest premium to benzene on 27 May, when spot prices stood at 269?/USG, a 51?/USG premium over spot benzene.

While current demand for toluene is scant alongside wintertime blending economics, which favor butane, traders looking forward say it's likely toluene demand for blending will be brisk again next year.

RBOB's forward curve shows about a 25?/USG increase in pricing from December through April, when blending demand begins just before driving season. With storage costs only 10-12?/USG, many traders may opt to store high-octane material, including toluene, mixed xylenes and reformate, ahead of higher blending values.

Some traders are already inquiring about securing storage tanks to build inventories of high octane blending components while prices are low in the first quarter of 2016 in order to sell to blenders in the second quarter, when demand firms and prices rise following the RVP switch around April. At the same time, persistent weakness in WTI could further weigh on benzene prices into 2016. Toluene prices often follow gasoline more closely, while benzene tracks crude.

While traders anticipate ongoing shortness in the octane market in 2016, it's also possible that a flurry of buying during the first quarter could elevate prices ahead of blending demand. That would result in less of a pop in prices during the second quarter, some market participants suggested.