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Butane entering winter gasoline season at four-year highs

HOUSTON, September 10, 2018 (PCW) -- Gulf Coast normal butane spot prices are entering their peak demand winter gasoline blend season at levels last seen in 2014, according to PetroChem Wire data, amid record exports and robust gasoline prices (See graph below).

Butane prices have been at relatively elevated levels since 2Q amid increased exports to northwest Europe and northeast Asia and periods when it has held a distinct advantage over ethane as an ethylene feedstock. In June, butane exports were at a record 255,000 b/d, up 26,000 b/d from May, EIA data showed.

The top two importers were Korea (64,000 b/d in Jun compared with 37,000 b/d in May) and China (43,000 b/d in June compared with 16,000 b/d in May). Meanwhile, RBOB gasoline prices have seen a similar lift so far this year, with the front-month often above the $2/gallon mark, a level last seen in July 2015. Butane has always been strongly tied to gasoline prices as gasoline demand is the purity product’s largest source of demand. In the winter gasoline blend, butane occupies a larger portion of the mix, boosting butane demand to as high as 600,000-800,000 b/d.

Will butane’s price strength linger and redouble during its peak demand season? The forward curve suggests this is not the case. Values through 2H 2019 are backwardated, indicating players feel current front-month values to be overheated.

RBOB prices were on the decline from June onwards and its futures curve is in backwardation through January 2019, which should exert bearish pressure on butane. In late August, China’s tariff hike on a swath of US imports, including butane, went into effect, which should dampen demand. However, exports to Europe from July onward were reportedly quite feverish due to a rash of production field and refinery outages in that region. This short-term European demand could well offset lost Chinese butane demand and help support prices through 4Q. -- Samantha Hartke

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