As the week came to an end, there was an increasing feeling that we’re actually in a dangerous place. Have we tried to kick-start the major economies too soon, especially in Europe and parts of the U.S.? Europe was starting to feel as if it had coronavirus under control, but cases are back on the up, while the rest of the world is still battling phase one, albeit in a slight time lapse. Our Boris has put a halt on lockdown easing as grim virus figures emerged in the U.K. this week. The world’s central banks have little room to respond further to the negative news, with governments already vexed at the prospect of all the debt they’ve already incurred, getting bigger and bigger, just keeping their economies in relative motionlessness.
The shift into reverse has trapped crude oil in and around the $40/ bbl mark for WTI. With a huge reduction in U.S. crude oil stocks this week surely it would have signalled an upward price move, but inventory builds in gasoline, other distillates and just that eerie feeling of more restrictions in store, actually pushed prices down. Devastating GDP figures coming out last week in the U.S. showed a 32.9% annualized fall in the second quarter, and that’s huge for the mammoth economy that is the US of A. So we sat and waited, but with the end of the month upon us the market steadied itself on Friday to close yet again around that $40/ Bbl. What we are coming to terms with is the fact that demand is just going to be lower for much longer than we had initially thought. So with this in mind what’s the buzz in LPG sounding like?
Clearly nerves were tingling a little in Saudi Aramco Dhahran last week as CP was set a little earlier. I won’t say “than normal” because the timing is rarely such. In fact I was asked this week, when will the CP be posted? I explained that if the market were to remain strong then I would expect CP to be announced just before the offices in Dhahran head home for the weekend, therefore as late as possible. Nowadays that’s Friday, but it was Thursday in the past. But if the market was weak or showing signs of coming off then expect an early announcement, just as we got this week, not even at the end of the second round of price indications from their term buyers. So $365/ Mt was set for August propane, and already by Friday September CP was trading below $350/ Mt in the paper world. This was a sign of an edgy LPG market, and it has permeated itself through to the whole marketplace, maybe even as far as the boys in the shipping segment, well maybe not quite yet.
Mix in with it the back-end of the usual LPG summer demand recess, and LPG looks as if it could get a little sloppy, despite crude oil hovering around its default mark. Cargo resellers out of the Middle East have found this week a little challenging, even the Qataris had to battle to sell a half propane/ half butane cargo, with the buyers securing a significant discount of around $30/ Mt. There’s also a KPC propane cargo being tendered for the end of August, good luck!
Even the poker playing escapades, come seriousness, of the “windows” in the east and west also appeared to be uneasy. The eastern version was calm, some may say lacking direction, when a deal for September got done at FEI minus mid $20s/ Mt, translating to something around August minus $12-13/ Mt. Then hey presto the seller stuck another cargo on the window immediately afterwards, but at least they tried to lift the price. Several offers have also appeared in the European window, however the buyers seemed to have forgotten to turn up, feeling a market softening, especially with the pro/naps far too narrow to inspire petrochemical buyers.
The eyes on the U.S. again focused on inventory levels. For the first time in a while expectations were met, but it was difficult to gain a feel of bullishness out of it. The build was a couple of million barrels, and compared to last year, it’s a tenth higher. So really we should be seeing downward pressure on U.S. propane prices, widening the ARBs, and more exports to squeeze those inventory levels down. Now, exports were significantly down this week, at closer to 700 M Bbls/d instead of double that number we thought would be the case this time last year, but we all know not to take EIA weekly numbers at first sight. With exports below 1 MM Bbls/d on a four-week rolling average, most players would be anticipating a widening ARB. It’s not like butane prices are working from the U.S., making lifters squeeze propane exports down. So it did come as a shock to hear that the rumour of cancellations was back, hitting a few publication’s headlines, may be a couple, maybe more. September ARBs had certainly widened, finishing the week around $112-113/ Mt, but freight was grabbing all the upside and the ARB was certainly an open and shut case, skewing to the closed side of the equation, with netbacks dropping below 4 cents/gallon. If production numbers remain around 2.2 MM Bbls/d and exports continue sub 1 MM Bbls/d, then inventory levels are only heading in one direction. Demand in Asia is not going to save it, it’s looking too lacklustre to say the least. I think its time to keep an eye on the U.S. market, there’s just too much that could go wrong both domestically and outside in the bigger world. NGLs are certainly being produced at higher levels than oil and natgas production would suggest, but this is how the current economics are working. Whether this will continue, who knows, but my guess is that it probably will.
Now in all this uncertainty the shipowner has again had another cracking week. There are still requirements coming out in August, especially in the Middle East, but the list of ships is so small that charterers just have had to up the ante. Baltic jumped $15/ Mt in a week to the heady heights of $64.5/ Mt, and it’s the east leading the way over the U.S., which also managed to accelerate, with talk in the $90s/ Mt hitting the broker reports by end-week. But despite the market upside we see today, tomorrow doesn’t have the same feeling. Talk of cancellations and reduced exports is bad news for owners, but I’ve got that sneaky feeling that ship owners will have something up their sleeves to make ships disappear from the prompter open lists.
Talking of disappearing, I do love the start of the U.S. presidential campaign, Trump having less supporters turn-up for his campaign rally in Tulsa Oklahoma than Watford will be getting next season (one for my nephew at Petredec), and recently know one’s seen Jo Biden, is it a cunning strategy to let President Trump self-destruct in public, or does he also realise what I’m seeing in the U.S. propane market, maybe time to keep your head down, let’s see!