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Asian LPG market seen firming amid rising Saudi supply worries

Singapore — The LPG market was seen firming in Asian trade Monday morning as market participants digested news about attacks on key oil infrastructure in Saudi Arabia over the weekend.

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The drone attacks early Saturday on the Abqaiq processing facility and the Khurais field caused 5.7 million b/d of crude oil production to be shut- in, along with 2 Bcf/d of associated gas that produce about 700,000 b/d of NGLs.

Saudi Arabia's LPG export supply relies heavily on associated gas produced along with crude oil. A 50% reduction in the kingdom's crude production would likely result in a proportional decrease in LPG production by roughly 10,000 b/d to 15,000 b/d on a monthly average basis, a significant portion of which is exported to the Asian market, S&P Global Platts Analytics said in a report Sunday.

Market reaction was mixed Monday with some saying that the shut-in will lead to Saudi petrochemical plants lowering domestic demand for LPG feedstock, while others said that the Saudis will prioritize meeting demand from the petrochemical sector and then adjust exports to balance production.

Saudi Aramco was due to announce acceptances of October-loading term cargo nominations early this week, but due to the drone attacks, some lifters have been informed that the unforeseen incident had caused a delay in issuing the October-loading program.

The LPG swaps market has already shown the impact from worries over the production shortfall, according to brokers. The Saudi propane contract price swaps October/November timespread indications flipped to a backwardation of $2/mt early Monday, from a $5/mt contango at Friday's Asian close, while November/December was at parity early Monday, versus a $4/mt contango Friday.

"Front-month pricing will be getting firmer," one trader said, pointing out that this is happening as North Asian consumers are preparing for winter demand.

The Argus FEI propane swaps October/November timespread narrowed to a contango of $8/mt Monday, versus a $13/mt contango Friday.

Due to the jump on front-month November Brent crude futures Monday morning versus the London close, October CP propane swaps was notionally indicated at $401/mt, up from $343/mt at Asia's Friday close, and $353.64/mt at the London close.

Traders also said concerns over lower Saudi LPG production would widen the premium of Middle East versus US cargoes. The premium had already been hovering at $20-$30/mt due to China's avoidance of US LPG amid the trade dispute, and traders expect that to widen further.

--Ramthan Hussain, mohd.ramthan.hussain@spglobal.com

--Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com