The premium of US butane at Mont Belvieu, Texas, to propane has widened because export demand for butane-heavy loads has grown because the US-Israel war on Iran.
March EPC butane averaged a $32.10/t premium to March EPC propane from 2-25 March, a sharp increase from the $6.80/t average during the same time a year earlier.
In-well March EPC butane has inflated to unseasonal values since the start of the war on 28 February, with the heavy feedstock rising by 13.7pc to an average of $480/t from 2-25 March, compared with $422.20/t a year earlier, as international demand for butane-heavy cargoes grew to replace split cargoes from the Middle East, which have been choked off by Iran's effective closure of the strait of Hormuz.
The lack of shipments from the Mideast Gulf has created a supply crisis in India, which relies heavily on imports to meet its requirements for cooking fuels. India gets nearly 90pc of its LPG from the Mideast Gulf, and to mitigate the supply shock, has turned to other countries for imports, including the US. India is set to receive around 432,000t of LPG from the US in March, the highest volume ever recorded, predictive volumes from Kpler indicate.
While the war tightens LPG supplies out of the Middle East, leading to higher delivered propane prices on the Argus Far East Index (AFEI), US propane — which trends directionally with international markets — has had less on chronic oversupply. US propane stocks increased by 478,000 bl to 72.9mn bl in the week ending 20 March, leaving inventories 59pc above the five-year average.
March EPC propane remains well below year earlier levels, averaging $385/t from 2-25 March, a 14.5pc decline from $450.14/t a year earlier.
Butane's premium to propane could continue to grow against a backdrop of political uncertainty in the Middle East. If the military conflict there ends, flows could recover, demand for butane-heavy loads from the US would retreat and butane's premium to propane could revert to seasonal norms. Butane typically weakens during the summer-grade gasoline blending season, which uses less of it.
