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Spot propane’s relationship to crude hitting all-time high on exports
HOUSTON, October 10, 2017 (PCW) -- Robust spot propane prices in the last few weeks have propelled the purity product’s value at an all-time high relative to crude, PetroChem Wire prices show.
Additionally, propane’s value expressed as a percentage to WTI (used frequently as an indicator of price strength) is also averaging at an all-time high on for the year-to-date (see graph below). Spot propane as a percentage of WTI came in at 78.1% at the end of Sep, the highest since PCW began assessing prices in 2007. For the year-to-date, that percentage has averaged 59.8%, surpassing the previous average high seen in 2016 of 47.2%.
From a demand perspective, what has really been fueling these raging prices are exports. Propane exports passed the 1 million b/d mark late last year and have been hitting and surpassing that level for the bulk of 2017.
US trade data shows that for the year-to-date (the most recent data is through Aug), propane exports are already some 525 million barrels above levels seen during the entirety of 2016, which was the previous record. Asia continues to lead the charge with about 49% of US propane exports going to that region in 2016, while for Jan-Jul 2017, Asia accounts for about 50.2% of US propane exports.
All the major Asian exporting countries surpassed their prior-year levels in Aug, the latest US trade data shows. But what has further supported propane prices of late is production disruptions due to Harvey. Supplies from Texas basins were shut in during the storm, as were fractionation facilities at Mont Belvieu, which has ultimately led to continued inventory draws to meet export commitments.
As the US trade data only currently runs through Aug, it does not reflect more recent demand pulls from Latin America, given supply disruptions from the earthquakes in Mexico.
Going forward, Asian demand is expected to remain in place given that new PDH units in China have not yet settled long-term agreements with any partners closer afield and have said US imports are still viable given strong domestic propylene prices and the better quality of propane from the US. (NGLs Week has written extensively about Asian demand. Read that analysis HERE).
Depending on the outcome of the Nov OPEC meeting, anticipated supply cuts from the Middle East should continue to draw more cargoes from the US to Indonesia and India (where some cargoes were reportedly heading in Sep). What should fall off by 1Q is the short-term sharp demand uptick from Latin America, depending on how quickly Mexican production is restored. -- Samantha Hartke