Middle East spot LPG slumps to more than 8-month low on oversupply concerns

Middle East LPG fell to more than an eight-month low March 6, dragged by the decline in Western crude markers, on concerns that the region will inevitably produce more LPG after OPEC+ announced that it will ease existing production cuts from April.

Platts, part of S&P Global Commodity Insights, assessed FOB Arab Gulf propane cargo at $569/mt March 6, down $2/mt day over day, while physical FOB Arab Gulf butane was assessed at $557.50/mt, down from $559/mt March 5. Platts had last assessed them lower at $566.50/mt on June 14, 2024 and at $548/mt on June 25, 2024, respectively.

The front-month May Brent crude futures were assessed at $69.51/b at the Asian close March 6, down from $70.83/b the previous session.

Platts expects an increase in crude oil production from OPEC, but not as much as OPEC+ intended.

"The increase in crude oil production is likely to lead to a corresponding rise in associated gas production, which includes LPG and NGLs," said Anmol Bhushan, lead research analyst at Platts.

"This could result in higher supply levels in the market, potentially exerting downward pressure on prices to some extent [as crude oil prices are going down too]," Bhushan said.

"To give you an idea of how much an increase in crude oil production can lead to an increase in LPG production, we estimate that for every 1 million b/d change in oil production, there is a corresponding change of 2 million mt/year, 1.9 million mt/year and 2.2 million mt/year in LPG production for Saudi Arabia, Kuwait, and the UAE respectively," he added.

On March 3, the OPEC secretariat said the eight OPEC+ countries -- Saudi Arabia, Russia, the UAE, Iraq, Kuwait, Algeria, Kazakhstan and Oman -- that were implementing a combined 2.2 million b/d of voluntary crude production cuts will gradually ease these cuts from April as planned, citing "healthy market fundamentals and the positive market outlook" after ministers from the eight countries held a virtual meeting.

Middle East cargo differential off lows

Platts assessed the FOB Arab Gulf propane and butane cargo differential at minus $14/mt to front-month Saudi Aramco CP swap values March 6, after the differential was assessed at a recent low of minus $29/mt Feb. 21. Prior to this, the differential was last assessed lower at minus $31/mt on June 24, 2024.

The Middle East cargo differential slumped last month on the back of aggressive offers and deals done at these levels, driven mainly by a healthy supply of LPG cargoes with no corresponding increase in demand.

"Think AG is quite long at the moment, just that [Saudi Aramco term] CP is too high," a trader had said then.

On Feb. 27, Saudi Aramco announced that its term contract prices for March are at $615/mt for propane and $605/mt for butane, both lower than February's CP at $635/mt and $625/mt, respectively.

Although the March CP is below that of February, market participants pointed out that the March CP was higher compared with the levels at which March CP swaps traded prior to the announcement.

Platts assessed front-month March CP swaps at a low of $603/mt and a high of $607/mt in the days before the March CP was announced.