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Isobutane-normal butane premium hits 25-month high on end-of-month positioning
HOUSTON, August 2, 2016 (PCW) -- This week, the premium held by spot isobutane over normal butane blew out to 11.75 cpg as the former was assessed at 66.75 cpg, while the latter came in at 55 cpg (see graph below). Such a premium has not been seen since May 2014, PetroChem Wire prices show, when the spread stood at 12 cpg with normal butane at $1.2475/gal and isobutane at $1.3675/gal.
Such blowouts of the relationship between the butanes (which usually are at parity) are not uncommon toward the end of the month as players fight to maintain certain positions and usually have to cover short positions in order to square their books.
What was interesting this week was not only the stoutness of the premium but the market activity in which that premium arose. Outright isobutane trades were few and far between, and even traded volumes for normal butane were light. Instead, players focused their attention on the spread between the two and traded volumes on that particular trading instrument appeared higher than average.
Some market sources did talk about a possible outage at a major isomerization unit, which would lead to tightness in isobutane. However, most agreed the blowout was likely due to a handful of players who had taken a sizeable position on the iso-normal spread and were caught short as normal butane gave up about 10 cpg, or nearly 15% of its value, in July on the back of weakening crude. Isobutane, in contrast, shed 3.5 cpg, a 5% decrease.
As expected, this shortcovering phenomenon is expected to be shortlived and already on Friday, the premium was narrowing to 6.875 cpg as end-of-the-month dynamics roll off the board. -- Samantha Hartke