European propane prices break bearish trends in oil futures

Propane prices across Northwest Europe have been on an upward tick due to recent restocking, helping to recover some of the recent losses from weakness in the wider crude market, which traders attributed to the bearish positions in the Brent futures market.

Platts, a part of S&P Global Commodity Insights, assessed the CIF NWE propane large cargo market at $585.25/metric ton on Sept. 19, this was $23/t higher on the week amid strength in the wider crude oil markets and increasing bidding activity for propane cargoes ahead of winter.

Prices for European propane have made cautious gains since the steep fall from $618.25/t on Aug. 27 to $526.75/t on Sept. 9.

Recently, traders have cited an increasingly weaker outlook in sentiment in the wider oil market due to players' positions.

The increasing bearish outlook from investment funds and physical players for crude oil in the Brent futures market has been pulling down Northwest European propane prices over the last few weeks, traders said.

"Funds are short propane for the last few weeks," a European LPG trader said.

The propane market has been recovering due to strong bidding activity ahead of winter and improving prices in the Dated Brent benchmark oil price.

Investment funds' positions in the Brent futures market switched to net-short in the latest weekly Commitment of Trade report, with their net position being nearly 21,000 lots net-short, according to Intercontinental Exchange data.

Commercial undertakings, which represents physical players, held a stronger bearish outlook with their net-short position widening between the end of August to the latest report for the week ending Sept. 13.

From the week ending Aug. 30 to Sept. 6, investment funds' net-long position weakened 98% while commercial undertakings' net-short position increased by around 9%, ICE data showed. At the same time, propane prices decreased by 7%, with traders seeing the large selloff as a key driver for LPG prices weakening.

For the latest week, between Sept. 6 to Sept. 13, investment funds shifted to a net-short position, while commercial undertakings' net-short position continued to increase by around 1%.

Despite this, propane prices increased from $538.75/t on Sept. 6 to $568/t on Sept. 13 against the shift to a larger bearish position in the crude oil market because of a last minute effort to restock ahead of winter for propane's use as a heating fuel and petrochemical feedstock, sources said.

As propane is a by-product of crude oil production, its moves typically track those seen in the wider oil market. A slight recovery in the crude market after the large sell-off in futures positions also helped to lift propane prices.

"Cracking margins are good are really good I would find it difficult to believe that demand has fallen off [with] heating season coming up," an LPG trading analyst said. "I'm super bullish for winter, no contango in the summer and some strong cash differentials, backwardated... Setting itself up for a strong winter and mainly on the back of Chinese demand which is having the knock-on effect."

US LPG exports in August stood at 6.3 million metric tons, with September volumes currently at 3.6 MMt, according to S&P Global Commodities at Sea shipping data. Of the September volumes, 1 MMt is headed to Northwest Europe and the Mediterranean, 300,000 metric tons higher month on month, the data showed.

The trading analyst added that: "It's stocking up time now -- should see restocking for heating demand. Another big pull from the East -- less coming in from the ARA -- but more demand from the other side, it's going to be really strong overall for Europe."