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Normal butane entering low-demand blending season at three-year high

HOUSTON, March 21, 2017 -- Normal butane prices have been strong over the last four months, thanks to robust exports, record gasoline demand, relatively low inventory levels and slowing production. As such, butane is entering the low-demand summer gasoline blending season at highs not seen since 2014, PetroChem Wire prices show.

Although butane is always part of the gasoline blend, in winter, greater amounts can be used and the resulting higher RVP product can be sold beginning Sep 1. Butane demand can plummet from 800,000 b/d during the winter to around 60,000 b/d in the lower RVP summer gasoline blend. Although May 1 is the official EPA compliance date for the summer blend to be put on the market, refiners begin making this gasoline grade in Mar.

Recent sharp market corrections in the both the spot price and forward curve values suggest butane will remain stronger than the past two years even throughout this lull in blending demand. New Tier 3 gasoline regulations, which seek to further sulfur content in gasoline, could dampen blending demand even further going forward, no matter the season. What could provide price support are exports.

Butane exports hit a record high of 4.598 million barrels (152,200 b/d) in May 2016. Last year, butane exports were up 9.5% year-over-year, coming in at 39.138 million barrels (107,227 b/d). The uptick in exports was largely seen as coming from Europe and the Mediterranean for petrochemical cracking because of a scarcity of the product in the Middle East and Europe. Going forward, flows West should continue given the perceived availability of product from the US. Indeed, Ineos announced last week it was building Europe’s largest LPG storage tank at the port of Antwerp, largely for imported US butane.

Additionally, with butane and natural gasoline neck-and-neck as the most cost-advantage ethylene feedstocks through year’s end, as per PetroChem Wire’s forward cast cost assessments, incremental petchems cracking demand could provide further support during the low gasoline demand period. Butane cracking along the US Gulf Coast is estimated at a maximum of 140,000 b/d. -- Samantha Hartke

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