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Isobutane premium over normal butane blows out on shortcovering, demand
HOUSTON, September 21, 2016 (PCW) -- This week, the premium of spot isobutane over normal butane hit a high of 7.875 cpg, according to PetroChem Wire prices, the third highest premium it has seen for the year to date (see graph below).
While such price blowouts are common during the end of the month due to book squaring activities, this occurrence in the middle of the month is noteworthy. Additionally, the increasing frequency of such stout premiums has already put the year-to-date average at around 1.3 cpg, compared to 0.2 cpg on average in 2015.
Isobutane historically held premiums over normal butane, but the advent of shale production and the rush of supplies crushed that relationship to just a little above parity beginning in 2013. This week’s price blowout is more likely due to market player short-covering yet again, many sources said. Others pointed to an increase in demand from refiners to make alkylate, a gasoline blendstock. These refiners could be buying early since it is typically cheaper to buy and store butane in 4Q. Some analysts also attributed to the increasing strength in isobutane prices to a year-on-year uptick in isobutylene and specialty chemicals production in the Midcontinent and Gulf Coast.
While there was some market chatter about a potential outage at an isomerization plant, there has been little evidence to support that. Enterprise Product Partners owns the vast majority of isomerization capacity in the US, accounting for about 116,000 b/d (about 74%) with the remainder coming in at around 40,000 b/d. -- Samantha Hartke