Viewpoint: US butane stocks tight on steady exports

Steady US Gulf coast butane exports could set the stage for lower inventories when domestic demand for winter-grade gasoline blending arrives later this summer.

The arbitrage to Asia remains open as US prices are sharply backwardated through the summer. Asian butane prices are at a high for the year and demand for split butane/propane cargoes in Asia is expected to be steady throughout August, when domestic buying ahead of blending season typically starts. The US/FEI arbitrage averaged $109/t in June with freight to the region averaging $62/t during the same time. July loadings were reported to be very butane-heavy.

US butane exports averaged 171,000 b/d in April, the latest month available from the Energy Information Administration (EIA), just short of the record 184,000 b/d seen in January. In February, nearing the end of winter butane demand, the EIA reported butane inventories at a four-year low of 19.1mn bl down from 22.1mn bl seen the prior year.

If exports continue at a steady pace, inventory concerns could worsen as demand for winter gasoline blending picks up in the late summer ahead of the mid-September RVP switch. Inventories have risen since the end of blending season and the latest EIA data puts butane stocks at 30.5mn bl in April. However, the EIA's most recent Short Term Energy Outlook expects butane inventories to hit a high of 74.97mn bl during the third quarter ahead of winter blending season, down from 76.1mn bl during the same time last year.

Mont Belvieu, Texas, EPC butane surged to a 17-month high in early July, hitting an intra-day high of 124.5¢/USG on 5 July, on prompt buying for cargo loadings and supply tightness.

The high prices and supply tightness have moved butane to a sharply backwardated structure. August butane is about 8¢ behind July with September another 2¢ backward.

Butane from the Targa cavern has seen more liquidity during the spring and early summer because of export interest. The Targa cavern is mostly holding at parity to the EPC cavern.

Low inventories worried participants and raised prices earlier this year as well. Prices in May and June of this year were respectively 23pc and 31pc higher than the same time last year. As of 20 July, this month is 35pc higher than the same time in July last year.