Although last week was shortened by the Thanksgiving holiday, a few more pieces seemed to be falling into place in the U.S., and for that matter when moving out of the U.S. as well. If we then add in a few what might or might not happen questions, it was actually an eventful last week of November. Then came the attention on the U.S. from Asia, concern may be, as well as from a small number of trading houses nestling in the major cities of Europe. But why the concern?
As Thanksgiving holidays approach over in the U.S., we’re experiencing this paradox of having the signs of winter in the midcontinent, stocks dropping over 6 million barrels throughout the U.S. in the last two weeks, but propane exports have just hit a season’s high, with over 1.36 million barrels moving over the docks in the U.S. Gulf, U.S. east and west coasts. Mont Belvieu propane prices have surged on the back of not only the cold weather, but also the hefty export volumes, ending up close to 56 cents/ gallon, while the market was below 40 cents/gallon only 3 months ago, that’s up 40%.
It’s looking as if it’s been another one of those weeks in the LPG world, where defining a forward view of the market could go one of many ways, and the backcloth is an ARB market that initially headed south but has now regained some broader momentum. In today’s SIMON SAYs I’ll take a look at what the key indicators are up to, and what has happened to them over the last couple of weeks, to see if there’s a clearer direction going forward, as cargoes are starting to be talked for the January 2020 arrival period in Asia.
Over the last few weeks I’ve run a couple of blogs, as part of RBN Energy’s hallowed daily energy post, covering how the ARB works, how it relates to a physical cargo loading out of the U.S., and destined for Asia, and at nearly the same time as today’s SIMON SAYS hits the newsstands, a third blog will be posted that explains such glorified terms as the Argus FEI, the “Ginga” window and the standardized “Ginga” contract. Rusty and a few of the guys in Houston, and beyond, have then translated what I have said into good ole American lingo, and a fine job they’ve done too!
I bet some of you are saying that all I seem to talk about these days is that damn ARB, from Houston to Chiba, but to soothe any sore feelings I’m going to explain a little more about the direction of seaborne trade. Not just the route from the U.S. to Asia, however important it might be. We’ve all seen the world maps with those directional arrows, and in a nutshell that’s pretty much what it is all about. Whatever anybody says you can’t beat a good world map!
It’s a bit like trying to find a red bus on London’s Oxford Street when you really need one, just when the market could have done with a few extra LPG cargoes appearing from the U.S. Gulf, as well as more clarity on when new midstream and export expansion capacity was about to arrive, nothing much happened, but the clock keeps ticking, and with the blink of an eye we will be seeing in the New Year, 2020. It looks to me as if all those red buses are going to arrive pretty much all at once, but will we have enough passengers, or in our world, NGL production, to fill the bus up.
Yesterday I was in my comfort zone, the market action was clearly at the front of the curve, where some real time world LPG supply issues were having a significant influence on demand decisions in Asia, as we enter that winter run-in, just like the old days. Middle East LPG exports in October down, down from Saudi Arabia and right down out of Iran. U.S. Gulf exports at no change, despite being told we were supposed to be getting a 15% increase in export slots late third quarter.
It’s one of the most exciting parts of trading is not just buying a cargo somewhere, anywhere, but being able to fix a ship to load it, especially a Very Large Gas Carrier (VLGC). Of course, I like the pressurised, semi-refrigerated, mid-sizes etc., but to me the big ships are the heart of international LPG trading. I explained in Monday’s SIMON SAYS how the two cost elements of the ARB are the terminal fees, and the freight rate applicable for the Houston to Chiba, Japan voyage.
In yesterday’s SIMON SAYS, I started to explain the physical cost elements that sit in the middle of the ARB price spread, between Mont Belvieu and Japan, i.e. the terminal fees in the U.S. Gulf and the freight rate that applies between Houston and Chiba. I then followed it with the current market rumble I’m hearing on both of the legs, as we approach another winter in the northern hemisphere and as always an interesting time ahead for LPG prices.