General index, Crude Oil Data

Global Market Analysis, 17 June 2022

This week's analysis comes from Singapore and looks at how and why Far East propane cargo differentials have been moving slower over the month of June.

Far East propane cargo diffs move lower in H1 June on ample supply, steady demand

By Zulfadhli Kader

Ample supply amid steady demand has seen differentials vs swaps for the Far East propane cargo market move lower over the course of June.

The month began with Saudi Aramco setting June CP at USD$750/MT for both propane and butane, slightly lower than the paper values at the time (General Index had assessed both at USD$751.25/MT on 31 May). Many analysts boiled this down to volatile crude values and seemingly ample Middle East supply.

Activity in the daily pricing window was initially lacklustre, with limited bids and offers heard. On 3 June, a bid was heard for H1 July at FEI July minus USD$3/MT (equivalent to USD$788/MT) and an offer was reported for H2 July at FEI July minus US$2/MT (eq to US$789/MT).

The relatively calm market was roused by production developments and coronavirus news. The eve of the monthly OPEC+ meeting brought customary leaks over what would be discussed circulated (caveated of course by lots of ifs and maybes). Saudi Arabia was said to be prepared to increase production if it became apparent that the global supply would be impacted by a decline in Russian exports. The reports quickly became a firm announcement: OPEC decided to bring forward a production increase originally planned for September to July and August.

Elsewhere, economic indicators coming out of China were demand positive as its largest cities loosened lockdown measures to combat Covid-19 outbreaks. The bullish news, however, was short-lived. Restrictions were once again being re-imposed in Shanghai to control transmission, as the pursuit of a Zero Covid policy left a shadow over demand prospects.

On the LPG side, analysts concluded as propane/naphtha spreads widened, mainly due to a slide in the latter’s values, demand for Asia LPG would only head downwards. So, with an increased supply and relatively constant demand, Far East prices began to tumble.

The week of 6 June 2022 started with bids heard for H1 July and H2 July at FEI July minus USD1.5/MT and FEI July minus USD$5/MT, respectively, along with an offer for H2 July heard at FEI July minus USD$1/MT. Trades heard later in the week for H1 July showed the market falling, with the lowest being FEI July minus USD$7/MT. The week ended with just a bid and offer reported for H2 July only: FEI July minus USD$8/MT and FEI July minus USD$5/MT.

The downward momentum carried on into the current week for H2 July windows: a bid heard at FEI July minus US$9/MT; an offer was heard at FEI July minus US$7/MT; and a trade heard at FEI July minus USD$7.5/MT.

Expectations are we could see a mild reversal over the coming weeks. A lower flat price could generate further cracking, PDH and stock-building demand to offset what appears to be a bountiful supply of volume from the Middle East, with the first half of July just about settled.

General Index, Far East Indexes
Zulfadhli Kader
Zulfadhli Kader, Energy Analyst, Singapore
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