London — A lack of restocking of LPG inventories in Northwest Europe over the spring and summer months could lead to a rush for product when winter demand kicks back in, according to market sources.
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Strong flat prices for inland propane and butane this year due to a strengthening crude complex, paired with relatively thin supply and logistical issues transporting product along the Rhine, have discouraged stock building, according to sources. "People are always amazed that the price [for propane] keeps going up," a source in the propane market said.
Fuelled by a rising crude complex, the inland markets for propane and butane are currently sitting at flat prices comparable to January levels, when winter demand typically pushes both markets higher. On July 25, propane inland railcars and trucks hit $599/mt, their highest level since January 3.
Meanwhile on butane, with winter-blending for gasoline set start kicking again in September, demand could be stimulated.
"[Demand] will depend on the arbitrage to the US -- if that is wide open in September then blenders will pull [butane] hard. At that point we would go to [prices at naphtha] flat or north given the stock levels," said a market source.
Stocks of LPG across the EU from March to May have remained below stock levels at the same time in 2017, according to data compiled by the Joint Data Organizations Initiative. May is the last month for which data is available.
Over those three months, stocks declined by 462,000 mt year on year, bringing stocks at the end of May to 1.675 million mt.
That includes a decline of 157,000 mt across the Northwest European storage hubs of the Netherlands and Belgium as well as Germany and France. The data does not distinguish between butane and propane.
That period coincided with a late-winter spike in demand for propane, after a relatively weak winter for demand across LPG. A mild winter delayed heating demand for propane, while a closed gasoline arbitrage from Europe to the US smothered demand for butane as a gasoline blending component.
As temperatures dropped suddenly in late March, that produced a sudden run on propane in particular, hollowing out inventories going into spring.
While inventories can usually be subsequently rebuilt during the spring and summer, when LPG prices typically dip on lack of demand, this year the rise in flat prices discouraged that process, said market sources. --Katherine Dunn, firstname.lastname@example.org
--Edited by Alisdair Bowles, email@example.com