The phrase “lies, damn lies and statistics” was most famously popularised by the American writer Mark Twain, and attributed to British Prime Minister Benjamin Disraeli, although whether he said it, or not, is still unanswered. More and more traders love the data streams, inferring and extrapolating, in order to back-up, or even direct them, into what trades they need to be putting on in the market. Of course, this data comes in all different formats and across ever diverse time periods, but the key for me to provide the blank canvass on which to trade, is getting a pretty good idea of where the crude oil price is travelling; easier said than done, and no one is claiming there’s a right or a wrong. I like to see where the so-called experts are viewing crude oil demand.
Only last month, the four energy agencies, IEA and the OPEC secretariat included, were predicting a growth in demand for 2023, but their forecasts were less optimistic than the ones they had made a year earlier. We know that OPEC are always the most positive and they had predicted a 2.3 MM Bbls/d increase, IEA was at 2 MM Bbls/d, while the EIA was nearer to 1.4 MM Bbls/d. This shiver in the oil soothsayer’s world has partly led, although some may say there is no correlation at all, to a month of weaker prices. But these experts are turning more bullish, especially when you look at EIA numbers, and even some of the major banks. EIA are now close to 1.6 MM Bbls/d, IEA 2.2 MM Bbls/d and OPEC over 2.3 MM Bbls/d. Maybe this is why crude oil prices are set to record their first weekly gain since mid-April. Of course, you have to throw in a little more optimism on the debt ceiling getting sorted, the purchase of 3 MM Bbls for the strategic petroleum reserve, and the ensuing U.S. driving season, but maybe this week we should be tipping our top hats to the oil market experts in true Disraeli fashion.
And I’m not stopping there when it comes to data, as the EIA published numbers relating to U.S. propane consumption last winter, and what it threw-up was really no surprise. By its nature, domestic and commercial LPG supplies have found it very difficult over the medium term to be competitive with natural gas, whether that’s in the US, or anywhere else for that matter in the world. Therefore, as soon as natural gas gets piped in, LPG cylinders get booted out, or left for the BBQ in the garage. Then throw in the impact of global warming, given the winter use of LPG for heating in the U.S., and demand is surely heading one way. Now retailers are clever people, they are trying every which way they can to try and bolster demand, or at least improve margins, on what appears to be a deflating business arena. The EIA numbers spelt it out, it is shrinking! The demand numbers were at their lowest since winter heating season records began in 2010. Even the cold months of December through February were down, averaging less than 1.1 MM Bbls/d, versus peaks between 1.2 and 1.4 MM Bbls/d in the decade before. Yes, it was warmer than normal, but isn’t that now more likely in the future than less? So, if there’s more production, there’s even more LPG exports that will have to happen. And butane is heading on the same course, as the amount being conjured into a gallon of motor gasoline becomes less, as the growth of demand from those with internal combustion engines starts to slowly but surely wane.
Summer is just about here, but is it really, especially when we look a little closer at the LPG seasonal cycle. I know the market extremes have pretty much disappeared with the counter-cyclical, some may say steady, buying of the petrochemical sector, but we all expect something of an overhang as the blossom turns to green leaves here in sunny England. At first sight you’d expect to see ships pushing to find homes, ships potentially sat floating playing any potential contango economics, or a pretty glum feel in the market. Okay, we’ve seen all those producer cargoes getting lifted by the producer traders, and more FOBs in the Middle East have popped-up, whether it’s Qatar or Chevron selling. In the U.S. propane exports have steadily moved up not down, averaging around the 1.6 MM Bbls/d, that’s nearly 3 VLGCs per day in layman’s terms. But there’s very little overhang, some may even say there’s more demand to come. And that’s the point. The spot market may not be making all the headlines these days, as the underlying business is relatively efficiently chugging along, and therefore we all keep saying there’s not much happening or it’s quiet. But we know record volumes are flowing, just look how many VLGCs are in the market, I lost count at 340! In my day you could pretty much name every VLGC, today pretty much impossible for my senior brain.
The key for me has been the growth of China’s propane dehydrogenation (PDH), where there’s now 23 plants with a combined capacity requiring about 16.5 million Mt of propane per year when operating at their limit. Without doubt they’ve underpinned the market, to add to the strong flexi-cracker demand in Korea, Taiwan, Europe and increasingly China as well. Although it’s easy to say that operating rates have been at relatively low levels last year, and the early part of 2023, but we’re seeing processing figures rebuilding back up to an intensity in the high 90%, coupled with new plants coming-on (two currently), and less planned or unplanned maintenance programmes. Steady buying helps take a lot of the bumps and troughs out of the LPG market, but I better not speak too soon, this is LPG!
Otherwise, Asia has seen a small amount of buying in the single digit premiums over FEI, which is above the June/ July paper spreads, that are barely hitting zero. But FEI is a delivered price, there was a deal reported at a premium above CP in the high $20s/ Mt for June delivery. This isn’t May CP, it’s June, which is already trading $60/ Mt below May on the swaps board. Then take off $95 freight, and you can see the problem CP pricing has in the market today versus FEI.
The ARB from the U.S. to Asia did manage to pop another $10/ Mt on to its starting level of low $170s/ Mt, but the freight market again took most of the fat moving up past $145/ Mt, but not all. Re-sale numbers ex Houston have nudged above the 5 c/g marker and there’s hope it will hit closer to 6 c/g, as the dynamic between more ships, more exports and a stronger PDH under-belly in Asia gives a little more power to the seller’s elbows, for now anyway. As Disraeli also said, “the secret of success is to be ready when your opportunity comes”, which is funny as I swear I came up with that one!