Above average temperatures across Europe have delayed the start of heating season, tamping down regional propane demand. Despite this, outright propane prices have been on an upward trend, driven by gains in crude rather than by LPG specific dynamics.

Cracking economics point to both propane and butane offering better returns than naphtha. But overall weakness in the petrochemicals sector has been keeping cracker run rates on the low side. While this appears to have stabilised, few expect to see a sustained recovery in the short term.

So, although imports from the US have slowed, there is little sense that northwest Europe is short of product even though local production has been eroded by a year of dramatically high natural gas prices. And high US stocks combined with rising US LPG production has assuaged fears that recovering Asian demand might leave Europe short of US supplies.

The same mild weather and high stocks that are weighing on propane have also caused prompt natural gas prices to collapse in the last week of October, dropping back below LPG. As a result, more refinery LPG is emerging. The premium for downstream railcar prices compared to large cargoes has narrowed fromover $200/t in early October to less than $100/t. However, the natural gas forward curve suggests that the present weakness is unlikely to last and refinery supply to the market is still far short of where it would usually be.

• Crude prices are expected to be buoyed by production quota cuts agreed by Opec+ members

• Naphtha continues to lag gains in crude as stocks, high refinery runs and limited demand depress prices

• In LPG, the overall sentiment is rather bearish with some pockets of bullish support for price such as seasonal heating requirements, improving petrochemical margins and natural-gas substitution

• US propane inventories stand at comfortable levels, lending confidence to the market going into peak heating season

The next 6 months and longer term