Back in 2017, Brexit’s Vote Leave boss Dominic Cummings was behind a £350 million lie, written on the side of a campaign bus, at best we might get away with calling it a mistruth. The clever strategists and media plotters had cunningly worked out that it didn’t matter whether the number was correct or not, it was more the fact that voters subliminally absorbed the basic argument, that money paid to the EU could instead be redirected to the National Health Service (NHS). It became a major issue leading up to the referendum, and against all the apparent odds, the UK voted to leave the bosom of Europe’s political and economic club.
The same tactics of blurring the truth, even blatant deceit, have not only played a strong role in the lead up to the presidential election 2020, but are again coming to the forefront, as the candidate, who appears to have lost, is fiercely trying to make us all believe there’s been voting shenanigans going on in the so-called “swing state” battlegrounds. Why bother proving it, just by calling it raises doubt in the subconscious minds of more than a few Americans. Many will say it’s not new. Certainly, the ability to use different forms of media to cloud voter judgement also pervades itself in moving commodity markets, where rumours are easy to find and facts are not.
I’m afraid that’s life these days, and we all have to make an even more concerted effort to read between the lines. Traders have been notorious for telling the truth as they like to see it, even producers and buyers can get on the same wave-length, but fortunately actual prices are recorded in far greater numbers than ever before, mainly the result of the growth in derivative trades and their capture on the ICE and CME exchanges, as well as greater visibility via the trading windows. But the start of a rumour can still have a persuasive impact on price movement. I would also like to feel the LPG sector is more prone to exaggeration than deceit, (or that preface to a sentence; “I’m not sure, but I did hear”), than the blatant deceit of some politicians and partisan groups. But, in a week of political turmoil connected with the election to the highest office in the world, where does this leave the energy markets, reacting to rumour and counter rumour, oh yes and some actual vote-counting!
Over the last few weeks we’ve increasingly had our eye on developments in the U.S. NGL segment, and with Joe Biden finally being called the winner, the question is still how much of his green agenda will he get past a Republican Senate. No doubt he will be returning to the Paris Climate agreement, oil pipelines such as Keystone and Dakota Access may be for the chop, and methane drilling rules will be tightened-up, as well as other potential tinkering in the shale arena, which has pretty much been given a free run by President Trump. But that’s for the future, what about the market this week.
We saw a sizeable draw of 2.6 MM Bbls in the weekly EIA propane inventory numbers on Wednesday, as stock levels just about match where we were last year. Production is still holding firm at over 2.2 MM Bbls/d, demand appears to be up given the increase of 127 M Bbls/d in the product supplied column, and the major mover was a 224 M Bbls/d jump in exports up to 1.425 MM Bbls/d. The massive export numbers just seem to back-up the rumours circulating that October was going to be a record month, and November might not be too far behind. Unseasonal buying into Brazil and demand in Latin America is adding more weight to the Asian dominated numbers.
It looks now as if propane prices in the U.S. are starting to gain ground as a ratio to crude oil, with percentages up around 60%, okay it’s customary for this time of year, but all usual conventions are being hit in this COVID-19 era. As domestic U.S. winter demand kicks-in, and propane prices in Mont Belvieu strengthen relative to WTI, international prices need to react. If this week is anything to go by there’s still continued strength in the Asian markets. In the “window”, trades of 23,000 Mt lots of propane for December delivery have firmed during the week, nothing too dramatic but there’s more bids evident than offers. Mid to high digit premiums were concluded for second half December, as sellers were starting to ask double figures. Further real evidence of demand came in the form of tenders to buy into Korea and Taiwan, mainly for petrochemical use, and a full cargo propane sale into East China with a premium above FEI in the teens.
There’s a visible swing of interest towards U.S. exports as the need for split cargoes is overtaken by winter dominated propane demand in Asia. The butane premium over propane in Asia has narrowed to single digits, as buyers retreat somewhat from the traditional Middle East menu of a couple of tanks of each grade. Qatar was free of export cuts in their December volumes, and this has helped buyers to notch down their FOB bids into the low negative teens. Reduced buying interest also dampened down Baltic freight levels, losing about $3/ Mt over the week. I’m a great believer that if you keep your eye on the freight dynamics it will tell you a lot more about the underlying product movements. Clearly a slowing interest in Middle East butane is causing a similar lack of curiosity in fixing VLGCs. It’s not as if there’s a bunch of ships loitering, but the absence of cargoes can sometimes give the market that illusion. Delays at Asian discharge ports are also helping ship owners, with the decision to shift ships to the U.S. probably a toss of a coin at this stage.
With the apparent demand for propane only cargoes emerging, you would expect a renewed surge in shipments being fixed out of the U.S., but if anything freight levels are at best stable, held up to some extent by the delays in VLGCs passing through the Panama Canal. Reports suggest that delays of between 10 and 15 days a few weeks ago for ships without reserved slots, has now improved to less than 5 days. So we might start to see freight levels edge back down to the $100/ Mt level. Yes, exports are at a record high, but there doesn’t appear to be much slack in the November and December programmes, as terminals along the U.S. Gulf coast appear to be fully booked, and exporters are struggling to offer more than just the odd spot sale in the market.
Normally you would expect terminal fees to be pushing even higher, as Asian demand appears to be solid, backwardation in the FEI looks to be heavily skewed to the front, while the Mont Belvieu market is in contango into January next year, surely a sign to trade now and not tomorrow. But we all have that “winter’s coming” attitude and the belief that as we get into 2021 the front will get even more backwardated. That’s maybe why we are seeing re-sale levels vacillating around 9 cents/ gallon, while the ARB netbacks on paper would suggest something in the very low teens. Something might give next week, maybe even the current President of the U.S. confirming he’s lost, but surely that will just be more fake news!