US butane blending season ends

OREANDA-NEWS. March 19, 2015. Butane blending has largely come to an end at US refineries as gasoline standards transitioned to lower Reid vapor pressure (RVP) thresholds for summer blending season on 15 March.

Refiners on the Gulf coast, in the midcontinent and in the northeast have all seen a tapering in butane demand for blending as of mid-March.

During the colder weather months, refiners and blenders produce a high-RVP gasoline containing a larger percentage of butane in the mix. Butane is a high-RVP blendstock and its steep discount to RBOB usually gives blenders good marginal returns.

Butane blending season runs from 15 September to 15 March according to RVP standards set by the US Environmental Protection Agency (EPA).

RVP standards differ among regions and summer RVP-specs are too low for blenders to feasibly add large quantity 52-RVP butane. Although butane is not entirely removed from the process, its share of the gasoline pool decreases significantly after 15 March.

Butane's price is expected to firm during the blending season, but this year's market oversupply and all-around weaker commodity prices dampened butane prices.

Prices at Mont Belvieu, Texas, and Conway, Kansas, reported a short-lived uptick in early September, before heading into freefall until January. EPC butane dropped from to 127.125?/USG on 15 Sept to 62.75?/USG on 7 January, and Conway butane fell from 122.5?/USG to 63.75?/USG during the same time.

In the New York Harbor, prompt butane delivered by rail prices firmed longer than comparable markets in other regions, thanks to a tighter market supply. But the price fell as well starting in October, when it dropped from 182?/USG to 51.7?/USG on 30 December.

Butane is phased out of the blending process gradually, and its demand - and by extension price - declines beginning in late winter. Between mid-March and the beginning of May, blenders shift their operations to summer gasoline, and slowly use up the remainder of their butane inventories.

In the first half of March, prices in the midcontinent and on the Gulf coast fell relative to WTI, with Conway butane dropping from 59.2pc on 27 February to 52.4pc on 11 March, and EPC butane falling from 63.1pc of WTI to 56.3pc.

The New York Harbor butane by rail market ended its seasonal quote priced at a low 52.9pc of WTI, after peaking at 85.8pc in early-November.

More butane is sent to export in the summer months, with March historically showing the first early uptick in exported barrels, according to Energy Information Administration (EIA) data. US butane is exported globally, though South America imports the largest portion.

In 2014, butane exports more than doubled from February to March, though in 2013 and 2012 the increase was more gradual, at 15pc and 26pc, respectively. Exports tend to slump in August and September, when blenders return to the domestic market.

In the last week, butane has firmed relative to WTI, leaving opinions varied as to where the price is headed in the near-term. Nevertheless, participants still expect the price to fall as spring progresses.