Talking of circles, I was intrigued about this oil tanker called “Willowy”. The ship’s officers were called to the bridge to be told their ship, and four others close-by, were sailing in circles, unable to use their steering, and potentially close to a collision, but why was this happening? The ships were in the South Atlantic off South Africa, an area notorious for strong currents, but not where the four ships were located. And this wasn’t the first such incident reported, previously it had occurred close to a Chinese oil facility, as well as in the Straits of Hormuz.
For a lot of internationally based LPG players the U.S. market is a somewhat intimidating place, pipelines are running here, there and everywhere, dominating the logistical landscape, there are no ships to spot moving LPG around the vast U.S. coastline sending out a clue or two about what is happening, and to top it all, it’s called NGL, then throw in this stuff called ethane, which is pronounced somewhat differently this side of the pond, and there’s natural gasoline to boot. Oh yes, they even split mixed butanes up between normal and iso.
Who would have believed it, only two months ago the price of WTI went negative, although mainly driven as a reaction to a closing date on a monthly futures contract, but it was signifying utter turmoil in the oil sector, where demand had collapsed, OPEC had buckled, and any oil related orifice available was being used to store excess barrels of crude oil. The pandemic wave of coronavirus had engulfed the western world like nothing had done before it. “V” shapes became elongated “ticks” as economists scrambled to make sense of the ever changing data and unpredictable future.
The LPG market takes pointers from a number of direct and indirect sources, not least the crude oil and overall energy scene, but also the global array of economic data and indicators. The last few months have been no different, especially as we emerge from what’s been the biggest shock to both our lives and to the world’s economy, probably in living memory. And then there’s the correlation between what we think will take place versus what is actually happening, in LPG terms, between gazing into the forward market crystal ball, against the rolling reality of physical transactions.
We all know that energy markets are fully loaded with the unrelenting volatility of price movements, the apparent boom and bust cycles, and the scaremongering of the dreaded prognosticators. All those with the words “trader” in their automated email sign-offs are supposed to love the “v” word, take it away and they end-up in a state of despair, but fully exposing themselves to the market’s precarious unpredictability has become a thing of the past. A few decades ago we found the only way to switch-off was to drink beers at night and wait for its anesthetic properties to kick-in.
The market, and the world itself, have had a strange week. Even after half a year of the coronavirus, when the world rapidly became very abnormal indeed, we suddenly have events happening that were very difficult to foresee. Now I’m not going to spend too long talking about the trader’s DNA, yes vision. If you’ve been following the U.K. news in the last week , having the ability to “see” has grabbed the attention of most of the media, some of the public, plus an awful lot of paid and unpaid satirists.
Back in my SIMON SAYS blog on 8th March, I had asked the question, “are VLGC owners about to lose control”. It might have taken over a couple of months to evolve, but I think today we are seeing the answer. As Simon Cowell, the infamous X Factor panel critic on both sides of the pond would say, “and it’s a yes from me”. It just took a little longer than I expected, and the terms of engagement have maybe changed a little from what I had originally expected. Of course it’s all tied up with the issues associated with coronavirus, and its impact on the economy, the energy and LPG markets.
Trading the LPG market is about assessing change, predominantly on a relatively short-term basis. But hold on, we shouldn’t be taking our eyes away from the base-load volumes, or “contract tons” as we more commonly refer to them. You can see the domination of the spot deals in the market reports that hit our desks on a daily, weekly, or even monthly basis. They need to have content, they need to show change, in numbers, market situations, and maybe even a little direction. The reports also rely on the information and data that’s being produced from the daily market chatter, the weekly U.S.
Days are starting to morph into weeks, and soon we’ll be forgetting which month it is. But the powers that be are starting to see divides appearing, I won’t say cracks yet, as the debate gathers pace for an easing of lockdowns, and a return to work to galvanize what is appearing to be a worsening future economic outlook. Others want the focus to remain clearly on health and the prevention of a second COVID-19 outbreak, and let’s not forget that most of us in the world are yet to get this current outbreak really under control.
As we leave a week of subdued optimism in the oil sector, as OPEC+ cuts take shape, a wave of shut-ins hit the U.S. shale patch, and WTI pops its head again above $20/ Bbl, it’s time to bang that perpetual gong of mine again, and revisit the world of the U.S. LPG exporter. Where U.S. origin, shale fuelled, propane and butane exports have seen phenomenal growth, becoming the dominant force in the global LPG industry over the past septennium, and making one company, Enterprise, the largest exporter of LPG in the world. All U.S.