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Viewpoint: US propane sees export support in 1H

27 Dec 2017 13:00 GMT
Viewpoint: US propane sees export support in 1H

Houston, 27 December (Argus) — Mont Belvieu, Texas, propane is poised to remain strong into the first half of next year as steady export demand and low-inventory concerns linger.

Market analysts expect LST propane to remain at least above 55pc of WTI through the first quarter of 2018, even with the seasonal backwardation seen late in the first quarter. Argus consultants share a similar view. LST propane averaged 70pc of Nymex WTI over the second half of 2017, up from 56pc of WTI over the first half of the year. This is the strongest value relative to WTI seen since 2011, when propane averaged 65pc of WTI.

LST propane hit three-year highs in late November, assessed as high as 101.875¢/USG on 27 November and December opened with LST remaining just below 100¢/USG. LST propane remained over 80¢/USG after 1 September because of concerns over tight supply, tracking the arbitrage to Asia. Expectations have called for the forward curve to remain flat to slightly backwardated to start 2018 before falling more sharply late in the first quarter and into the second quarter as heating demand ends.

EPC propane has also been around three-year highs, assessed as high as 100.875¢/USG on 27 November. EPC is expected to remain fairly flat to a slight discount to LST through the first half of the year, according to market participants.

Propane inventories were reported at 74mn bl for the week that ended 1 December, according to the Energy Information Administration (EIA), down by 26pc from 2016 levels. In November, the US Energy Information Administration forecast propane inventories would bottom out at 39mn bl in February and start building in March. In 2017, inventories bottomed out at 39mn bl in April and began rebuilding in May following cargo cancellations.

US propane will continue to see support early in the first quarter from heating demand, as forecasts call for a more normal, colder winter over much of the country this year, even though heating demand was slow in November.