Luka Powell
Financial & Capital Markets

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Luka Powell (00:19):

Welcome to The Olefins Weekly Wrap-Up. Today is Friday July 21st and I’m your host, Luka Powell.

Pablo Giorgi (00:27):

And I’m Pablo Giorgi.

Luka Powell (00:30):

And together as Chemical Market Analytics, we recap the top events moving the ethylene and propylene markets over the past week. The design of this podcast is to complement the content from the North America Light Olefins weekly service, otherwise known as the NALO weekly.

Yesterday, the Women’s World Cup kicked off in Australia and New Zealand. I’ll be cheering for both England and Australia.

Pablo Giorgi (00:56):

And I’ll be cheering for Brazil, the US and Argentina again.

Luka Powell (01:00):

I think between the two of us, we have a pretty good chance of being happy with the winners then.

Pablo Giorgi (01:06):

Whoever wins there will be a lot of action over the next few weeks. You know where else there has been a lot of action? The Energy Markets!

Luka Powell (01:14):

On Thursday, July 20 WTI settled at $75.63 per barrel as lower than expected US commercial crude inventory draw, reported to be 0.7 million barrels (MMbbl) and a subtle build in distillates offset the gasoline stockpile erosion. Notably, gasoline stock is now again trending below the five-year range .

Natural gas settled at $2.76 per million BTU. soaring over 8%, or $0.212 per MMBtu from last Thursday’s settlement. The price increase was mainly on the back of a weaker-than-expected inventory build.

According to the EIA, 41 billion cubic feet (Bcf) of gas were stored last week, lower than the five-year average of 48 Bcf. The bullish sentiment in the gas market this week also stemmed from the extreme heat in the southern part of the US, which will continue to hold up gas demand for power generation for at least the next couple of weeks.

Pablo Giorgi (02:14):

Moving to NGLS, Purity ethane prices continued their rally this week, starting at 33 cents per gallon last Thursday, then reaching 46 cents per gallon this Tuesday, but receding and closing Tuesday at 39.75. On Thursday, ethane closed at 38.81 cents per gallon in Mont Belvieu.

Ethane prices soared until the frac spread reached 20 cents per gallon this Monday and have stayed at that high level. Several reasons can explain the surge in ethane prices, including reduced efficiency in the gas processing units, due to the extreme heat, issues with NGL fractionators, and export vessels being loaded during those upsets, tightening the market and increasing prices. Those factors are all temporary, but there are also structural factors at play, most notably the increase in takeaway capacity for natural gas from the Permian, which allows for more ethane rejection.

Now that more rejection is an option, ethane will need to pay the processing and transportation costs to avoid being rejected. That spread is probably around 10 to 15 cents per gallon.

Non-TET Propane prices went from 62.75 cents per gallon last Friday to 66.25 cents per gallon this Thursday, staying above 60 cents the whole week. Propane price ratio to WTI crude oil increased again and is at 37 percent as of this Thursday.

That does it for energy, now onto ethylene.

Luka Powell (03:49):

Deals in the US spot market this week totaled 112 million pounds completed at the Texas and Louisiana hubs. Ethylene prices on a simple average basis increased, settling at 16-18 cents per pound for July delivery. Cracker operating rates for July are estimated to be lower than June, but rates remain elevated versus the first half of 2023. As a result of higher operating rates and weak derivative demand, inventories are estimated to have risen to above 3 billion pounds, well above the 5-year average, and spot margins have fallen to near zero.

Operating rates and inventories are expected to fall later in the year due to turnarounds, and margins are expected to improve with higher ethylene prices. Two operational issues were reported in the USGC last week with Ineos Chocolate bayou suffering an explosion and fire at an ethylene/propylene pipeline outside its facility, while Dow Plaquemine had a fire at its EO derivative unit. Ineos’ two crackers are down as a result.

Luka Powell (04:52):

However, Dow’s Plaquemine crackers were unaffected. In supply news, Formosa’s mixed feed cracker in Point Comfort started up this week after being down for almost a year due to unfavorable economics.

On the demand side, Bayport Polymers is still ramping up their new 625 kta HDPE line, and Nova is expected to startup their 450 kta LLDPE line by August. Ethylene consumption from these two plants will help to alleviate inventory pressure by Q4 when they reach optimal rates. Exports of ethylene and ethane out of the USGC have slowed as the trade arbitrage with Asia and Europe remains challenged. The ethylene forecast did not change this week.

See the NALO for more information. That does it for ethylene, now onto propylene.

Pablo Giorgi (05:43):

The US polymer-grade propylene spot market was active this week, with 44 million pounds transacted for July delivery. Prices stayed relatively stable this week, at just above 32 cents per pound.

Nevertheless, PDH margins continued to decrease, as propane prices increased. The refinery-grade spot market was quiet this week, with 2 pipeline deals recorded at 10 cents per pound for July delivery. The July Texas 45-day weighted-average price was 16 cents per pound, representing an increase of 0.29 cpp from the June 45-day weighted-average price. Enterprise products has started up their PDH 2 unit but is still stabilizing, and no significant production has reached the market yet.

The propylene forecast has changed this week, see the NALO for more information.

And with that, let’s wrap up the Wrap Up.

Luka Powell (06:38):

Join us for the First World Chemical Forum in Houston on September 12 to 14. In cooperation with the Wall Street Journal, Barron’s and Factiva hear from your trusted leading industry experts and industry leaders understand how energy and chemical markets are evolving into a fourth historical, industrial, and social revolution with infinite possibilities, get in-depth insights on geopolitics, climate concerns, shifting trade balances and disruptive technologies, and how that is transforming culture, socioeconomics, and market paradigms.

Pablo Giorgi (07:15):

Don’t forget to subscribe to our podcast on SoundCloud, Spotify, or wherever you get your podcasts, and give us a like or leave a review if you enjoy it. And if you have questions or want us to cover something more specific, you can send us an email. Until next time.

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