Higher inventories and a rise in US butane stocks have resulted in lower prices, write Amy Strahan and Emma Reiss
US butane prices are poised to remain seasonally weak relative to crude this winter as inventories heading into the gasoline blending season stand at least 14pc above levels a year earlier.
The US' EIA forecasts domestic butane stocks to stand at 53.1mn bl by the end of the first quarter of 2024, nearly a third higher than a year earlier. Most US butane consumption takes place during the winter-grade gasoline season as blenders can raise the amount of butane they can use in gasoline, while most US ethylene steam crackers are configured to use cheaper ethane feedstock.
The US winter gasoline season typically runs from 15 September to 15 March. The Environmental Protection Agency (EPA) requires blenders to lower the Reid vapour pressure (RVP) of gasoline during the warmer months, and butane's relatively high boiling point and RVP means it cannot be used to the same extent. Winter-grade gasoline has at least 8pc butane in its blend, while summer-grade gasoline usually contains about 2pc butane, according to the EPA.
US butane stocks rose by 14pc on the year to 55.8mn bl in June, EIA data show, as the country's natural gas liquids production climbs. Butane output from gas processing rose to a record high of 636,000 b/d in June, compared with 578,000 b/d in June 2022. US butane prices at the Mont Belvieu hub in Texas have weakened relative to Nymex WTI crude, to 43.4pc in the first half of September compared with 56.8pc a year earlier. The supply length on the prompt Mont Belvieu butane market this month has resulted in a steepening contango over the final three months of 2023. The September-December spread stood at a 0.50¢/USG ($2.27/t) contango this time last year, compared with 1.50¢/USG by mid-September.
Butane prices in the US midcontinent and New York Harbor have increased this month from August as spot activity picked up ahead of the blending season. But prices in both regions are weaker compared with the same period last year given ample supplies. Prices at the Conway hub in the midcontinent averaged 87.50¢/USG during the first two weeks of September, up from 82¢/USG during the whole of August but down from 111¢/USG over September 2022.
Butane discussions in the New York Harbor pegged railcar prices at a 30¢/USG premium to Mont Belvieu in September, compared with a 40-45¢/USG premium a year earlier. In eastern Canada, spot railcar trading near Corunna and Sarnia, Ontario, pegged butane at a weaker 15¢/USG premium to Mont Belvieu compared with a 20¢/USG premium in September 2022.
Up from the depths
The northwest European butane market is also preparing for the shift to the winter-grade gasoline season from 1 October. The market is not as dependent on US imports as it is for propane, but it is still sensitive to US pricing and US blending demand given Europe exports significant volumes of gasoline to the country.
Gasoline blenders in northwest Europe tend to buy coaster and barge cargoes, with demand typically picking up in September as buyers stockbuild before this change in season. Butane prices across all cargo sizes plunged to historical lows over the summer, as ample US supply faced weak local demand as a result of low ethylene steam cracker run rates.
Butane barge prices at the Amsterdam-Rotterdam-Antwerp hub fell below 50pc against naphtha in July, but have rebounded by almost 40 percentage points since as gasoline blending demand has emerged. The gain is dramatic but leaves butane levels below naphtha. Large cargo butane prices saw a similar trend as a result, falling to 57pc in June before climbing above 90pc in August. The weakness in the US has dragged prices back to about 84pc by mid-September, but butane swaps point to prices firming back beyond 90pc in October, which would still be low.
