Liquefied Petroleum Gases (LPG) Liquidity Update – 2018

  • 14 Aug 2018
  • By Owain Johnson and Jared MacLane
  • Topics: Energy

CME’s growing liquefied petroleum gas (LPG) product group is seeing increasing liquidity driven by Propane, Butane and Natural Gasoline. Given new supply and demand fundamentals in the global propane market, the Propane futures and options products group is setting new records in every category. Our recent article, Propane: A Global Perspective looked at macro-economic trends and highlighted the fundamental trading shifts taking place in the propane market.  Among other findings, increasing imports into the Asian market (Korea, Japan, China), along with rising production and exports from the U.S. market are creating new opportunities, and contributing to the relative strengthening of propane futures liquidity in the first half of 2018.

Open Interest

Propane recently set a new monthly open interest (OI) record in June with 218,000 contracts outstanding.  OI is a useful measure of total outstanding positions or open commitments in a delivery month. When looking at the average monthly open interest (AMOI), all CME Group LPG and petrochemicals products grew 40% YoY from 2015 to 2016. In 2017, AMOI dropped slightly -6% YoY. Through the first half of 2018, AMOI for the group was flat YoY; however, new highs were reached in Propane in June and in Natural Gasoline in May. (Summarized in the following table below)

Average Monthly Open Interest (AMOI) LPG & Petrochemicals Products
Product Group 1H18 2017 %Chg vs. 2017 All-Time Record Date
Propane 196,783 168,028 17% 217,997 18-Jun
Butane 47,317 51,584 -8% 57,622 17-Nov
Natural Gasoline 21,230 13,650 56% 24,720 18-May
Ethane 49,921 82,618 -40% 112,079 17-Jan
Ethylene 4,348 4,219 3% 7,807 16-Jun

Daily Trading Volume

After a record 2016, and a slight dip in volumes in 2017, annual average daily trading volume (ADV) in 1H18 exceeded 2017 volumes by 22% YoY, and on track to set new records by year-end for the combined group. Butane and Natural Gasoline products have increased 21% and 20% respectively YoY, and 1H18 ADV increased 44% YoY for Propane. A new record was reached in total monthly volume for Propane futures and options products with over 200,000 contracts traded in January 2018. The following table highlights 1H18 ADV for select product groups.

Average Monthly Open Interest (AMOI) LPG & Petrochemicals Products
Product Group 1H18 ADV 2017 ADV % Chg vs. 2017 Monthly Total Volume Record Date
Propane 8,203 5,678 44% 202,395 18-Jan
Butane 1,481 1,219 21% 47,462 16-Sep
Natural Gasoline 447 371 20% 22,057 17-Dec
Ethane 962 1,406 -32% 85,874 16-Sep
Ethylene 107 98 9% 6,435 16-Sep

Participation

LPG products have seen increasing participation, particularly in Propane futures and Normal Butane futures (code: B0, D0), as indicated in the CFTC weekly Commitments of Traders report. Total Large Open Interest Holders (LOIH), a proxy for overall market participation among firms holding reportable positions, reached 442 OI holders on the last reportable date for 1H18. Additionally, Mt.B. LDH Propane futures (B0) has averaged 116 OI holders in 1H18 vs. 105 OI holders in 2017, and Mt.B. Normal Butane futures (D0) averaged 69 OI holders vs. 61 OI holders in 2017. Recent new highs were reached in the following futures contracts:

  • Mt.B. LDH Propane futures (121 holders Dec-17)
  • Conway Propane futures (51 holders Jan-18)
  • Mt.B. Non-LDH Propane futures (55 holders Jun-18)
  • Mt.B. Ethane futures (53 holders Dec-17)
  • Mt.B. Normal Butane futures (78 holders Dec-17)
CME Group Select LPG Market Participation Statistics
Product Code Average Weekly LOIH (2017) Last Reported LOIH (26 Jun 2018)
Mt.B. Propane LDH (OPIS) B0 105 119
Mt.B. Propane Non-LDH (OPIS) 1R 40 55
Conway Propane (OPIS) 8K 38 50
Argus Propane Far East Index 7E 27 31
Mt.B Propane LDH BALMO* 8O 24 23
       
Mt.B. Notm Butane (OPIS) D0 61 73
Mt.B. Ethane (OPIS) C0 46 51
Mt.B. Nat Gasoline (OPIS) 7Q 38 40
       
Total   379 442

Source: CFTC Weekly Commitments of Traders Reports
*last reported 29 May 2018

Summary

The first half of 2018 has shown increasing liquidity in all three measures (open interest, ADV, market participation), as highlighted with new record highs across the various groups in LPG. Given new supply and demand fundamentals in the global propane market, the Propane futures and options product group is setting new records in every category. The relative overall strengthening of liquidity across the LPG group should encourage new entrants, and as new highs in open interest and volume continue, we should see more opportunities for participants to cost effectively manage risk throughout the remainder of 2018.

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