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Gulf Coast propane hubs see price bifurcation on exports dynamics, trading issues
HOUSTON, January 11, 2017 (PCW) -- Since the end of December, there has been a marked price bifurcation between the Gulf Coast propane pricing hubs of LST, EPC and Targa. Since Dec 22, EPC propane has come in at a 1-2 cpg discount to either LST or Targa, PetroChem Wire prices show.
While these Gulf Coast hubs usually trade at parity to each other, it is not unusual to see differentials of around 0.5 cpg for no more than a day or two. These differentials can usually be chalked up to market illiquidity. When the differential hangs on for more than a week, it has usually been due to logistical issues. In summer 2015, there was a sustained discount of EPC to both LST and Targa propane for several weeks due to storage issues at Enterprise facilities in Mont Belvieu. But from mid-Nov to early Dec, the EPC-LST discount blew out again, and this time was due to lower exports and robust inventories at EPD facilities.
Some sources have suggested that the typical market illiquidity that comes at the end of the year allows for a small number of players to trade at one hub more so than the others, creating such differentials.
But an analysis of trading volumes shows that activity at the end of the year and so far in Jan appear to have remained largely flat to 1H Dec levels. A backlog of exports in late Dec that persisted into the beginning of this week was the main factors for this bifurcation. Foggy weather held up vessel traffic on the Houston Ship Channel with several ships only being able to depart for a short window just before New Year’s Eve (particularly out of EPD’s terminal).
Sources said some traders sold off EPC propane as the shipping issues persisted. Shipping brokers noted there was increased chatter about a cancelled Houston cargo to Asia because of the inability to meet an end Jan delivery, which would not bode well for cargoes facing a similar situation. PCW has also learned that a handful of shops have also exited their propane positions either due to heavy losses incurred at the end of 2016 and/or to concentrate on their core business. The resulting sell-off was largely seen at the EPC hub, sources said. -- Samantha Hartke