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Viewpoint: Blending, exports set to support US butane

27 Dec 2017 20:56 GMT
Viewpoint: Blending, exports set to support US butane

Houston, 27 December (Argus) — Butane could see an uptick in US gasoline blending demand in January and February as refiners use up stocks.

Buying interest for blending has been slow this winter as summer purchases by blenders left many with enough butane for winter-grade gasoline to last through November. LST refinery-grade butane saw a deep discount to EPC throughout the summer, averaging a 6¢/USG discount between June and August, prompting many blenders to store ahead of the fall.

Yet market participants believe many will use up stores well ahead of the switch back to summer grade gasoline in March. Butane has moved to a more contango structure through January. Spreads put January at an average 0.21¢ carry to December prices.

Butane inventories were reported at 65.8mn bl for September, the latest data available from the Energy Information Administration (EIA). Stocks are only slightly higher than the 65.2mn bl reported in September 2016.

Butane is one of the cheaper options for gasoline blending, but prices remain higher than they were last year. Prices were 30pc higher this November compared with November 2016 and 3pc higher so far in December from the same month of 2016.

Strength in propane prices because of tight supplies has also supported butane, narrowing the spread between propane and butane to 1.5¢/USG in late November. This is much narrower than in prior months, prompting some to turn to butane for export.

During December, butane prices rose on export demand because of a more favorable arbitrage to Asia. US butane's discount to Asia widened to $135/t in late November, the widest since March. Freight to the region was heard in the mid-$50s/t during the same time. Export demand could continue to draw more butane and support prices as propane is expected to remain strong through the winter.