Market Commentary from the Frey
In days gone by, we could count on a quick snap back when things were “out of whack.” An example? For years, waterborne C5/light naphtha differentials were always a premium to the “equivalent” cavern C5 diffs at TAR and LST locations. Of course, this makes plenty of sense. After all, it costs money to move product along a pipeline from the cavern to a terminal and then onto a barge or a vessel. In recent times, that relationship no longer holds. Even prior to the Covid Pandemic/Panic of 2020, waterborne differentials were (and still are) running at a discount to their cavern C5 cousins. What gives?
Ah, as with most things in this world, there isn’t a one-size fits all answer. Of late, the answer has been the game we call Contango Bingo: Find the best product to store at the most advantageous location and place your marker on the spot. For some, their bingo card has been marked with gasoline components. For others, they held a jet fuel card. Still others are on finished gasoline or diesel. In the NGL world, C5 has been screaming “Store me, store me!” since the very beginning of the quarantines. After all, the Month One-July contango has been anywhere from 3.75 cpg to 7.0 cpg, settling tonight around 5.25 cpg. That’s a nice chunk of change.
Time will tell how this all plays out. However, until the Contango Bingo game comes to an end, we’d expect more of the unexpected.
All of these structures and domestic issues start to turn around under one condition. Gasoline demand. Organic gasoline demand will change the market structure and get the economic engine purring again.