Global Energy Markets’ Strife Escalates

Oil prices recently hit a four-year low after Saudi Arabia, OPEC’s leading member, slashed its contract price for U.S. customers in a further sign of an escalating war for control of global energy markets.

Brent crude, the benchmark against which nearly half of the world’s petroleum is priced, fell almost 3% to around $82 (U.S.) per barrel in London before recovering slightly.

U.S. crude futures are now trading around $76 per barrel, a price that will squeeze the profitability of shale oil producers in the U.S., who are considered the biggest threat to the domination of OPEC’s control of the price of crude.

OPEC has been losing market share to the shale oil producers, with Nigeria recently dropping out of the list of member countries that supply North America. The International Energy Agency estimates that OPEC production in the fourth quarter of this year will total 30.3 MMbbld, and next year 29.3 MMbbld. With LPG prices being linked to crude, LPG prices, in general, have also softened during the past month.

The large propane and butane markets in Northwest Europe are long—the result of the market being supplied by product from the North Sea and from U.S. sellers, which has exceeded demand and caused LPG storages to be topped up. Petchems are waiting for LPG prices to fall slightly before taking additional cargoes. Propane prices for large, fully refrigerated cargoes stand at $521 per tonne cif Northwest Europe, down $74 per tonne from a month ago, and butane prices are $515 per tonne, off $81 per tonne.

The smaller pressure propane and butane sector of the markets have become more active, but are still not competitive with other feedstocks.

The latest indication of propane swap deals are December $536-$540 per tonne and January 2015 $554-$558 per tonne, both cif Northwest Europe. North Sea prices for November are $544 per tonne fob North Sea terminals for propane and $507 per tonne for butane.

In the Mediterranean, LPG markets remain quiet with no major trades reported. Morocco is expected to be well covered by various refrigerated cargoes. Prices for large, fully refrigerated cargoes of propane are $541 per tonne cif Lavera, south of France, and for butane, $535 per tonne.

Sonatrach has fixed new LPG contract prices for November at $545 per tonne fob Bethouia and Skikda for propane and $535 per tonne for butane. Saudi Aramco negotiated November LPG contract prices at $610 per tonne fob Middle Eastern terminals for propane and at $600 for butane. Spot discounts against contract prices stand at minus $6 per tonne to minus $4 per tonne for both grades of LPG. In the Far East, low LPG prices have been attracting bargain hunters.