Trade Idea: Long US Propane

Onyx Research Analyst Mita Chaturvedi’s trade idea this week is to long US propane.

This week, Onyx holds a long-positioned view on the American Mont Belvieu LST propane, which has recently witnessed significant buy-side traction. The July/August LST spread was supported by buy-side interest in the physical by trade houses. In addition, Monday’s European window saw flat LST prices being well-bid alongside aggressive buying by imports in the propane arb, which takes the difference between the US LST and Asian FEI propane contracts.

The July LST/FEI moved up from -$245/mt a week ago to above -$220/mt on June 11th. The bullishness may have stemmed from an expected rosy fundamental picture ahead of June 12’s EIA stats, where many participants expect propane demand to rise slightly, production to have a small dip, alongside a projected stock buildup of 1.742 million barrels. Should this forecast come to fruition, this stock build would be the smallest weekly increase since the end of April – which would be bullish for the US propane contract.

Looking at Onyx’s market positioning data, we now see a more balanced 7-day split in the July LST contract compared with a 40:60 long:short split in the week to June 3rd. This highlights the recent addition to the contract’s length, and thus cements our bullish view for US propane in the near term.