Interregional propane arbitrage narrows

OREANDA-NEWS. Propane location spread trading waned between the midcontinent and Gulf coast midweek as a narrower price differential closes the arbitrage.

Firming Conway, Kansas, propane prices and softening Mont Belvieu, Texas, propane prices narrowed Conway's discount against the Gulf coast to 3.5-4.625¢/USG today. The price spread should be at least 6.5¢/USG for the arbitrage to be viable, market sources told Argus.

Conway/LST and Conway/EPC spreads have experienced an uptick in liquidity since the beginning of April as softening seasonal demand in the midcontinent weakened Conway prices, while booming exports on the Gulf coast bolstered the Mont Belvieu markets.

The spread widened from 6.625-7¢/USG on 15 April to 7-8.375¢/USG through the first week of May, but has shrunk to 5¢/USG and lower since the US Energy Information Administration (EIA) released news of a large build in Gulf coast propane inventories for the week ended 8 May.

The EIA's weekly report showed an unseasonal draw in PADD II inventories, which fell by 355,000 bl, the first draw in PADD II inventories during May since 2010. Inversely, PADD III reported a large 2.314mn bl build in propane reserves, as participants shipped barrels south from the midcontinent to the Gulf coast to take advantage of the arbitrage.

Conway propane prices have drawn some strength from the north/south transfers, while softening propane petrochemical demand on the Gulf coast and lackluster exports have weakened Mont Belvieu prices. Combined, these factors have driven the two hubs' prices to converge.

Last week, Oneok Partners estimated that the Conway/Mont Belvieu propane spread would widen to 7-10¢/USG. The prediction is still valid considering the uptick in propane demand expected on the Gulf from both petrochemicals and exports later this year.

Today, the Conway propane price sank to 43.5¢/USG at midday. It was priced at a 4.625¢/USG discount to LST and a 3.5¢/USG discount to EPC in two spread trades done.

LST propane today touched a 15-week low of 46.75¢/USG before rebounding to 47.625¢/USG. Propane stored at the EPC terminal dropped 1.50¢/USG in morning trade to touch a floor of 46.875¢/USG.

The butane arbitrage between Conway and Mont Belvieu remains open, with Conway talked at a 7-9.25¢ discount, but spot market activity has been thin.