Aramco Lowers the April LPG Quotations Amidst Shift in Demand

After a period of stability, the market for Liquefied Petroleum Gas (LPG), a crucial fuel for cooking and heating in Saudi Arabia, has seen a welcome price decrease during April 2024. This positive shift comes courtesy of Saudi Aramco, the state oil giant, who recently announced a reduction in their official selling prices (OSPs) for April. The decision to lower OSPs follows a period of higher prices driven by strong demand. However, recent market trends suggest a weakening in demand, prompting Aramco to adjust pricing accordingly. This move ensures Saudi Aramco remains competitive and reflects the current market dynamics.

Responding to current market shifts, the price decrease for LPG varies slightly depending on the type. Propane prices have seen a welcome drop of USD 15 per metric ton, bringing the current price to USD 615. Butane, another form of LPG, has experienced an even steeper decline of USD 20 per metric ton, settling at USD 620 per ton Ex-Work Dhahran, Saudi Arabia during April. These reductions translate to potentially lower LPG costs for both households and businesses across the Kingdom. Aramco's OSPs hold significant influence beyond Saudi borders. Contracts for LPG delivery from the Middle East to the Asia-Pacific region are often based on these prices. Similarly, Sonatrach's OSPs serve as benchmarks for LPG pricing in Turkey, the Black Sea, and the Mediterranean. Therefore, Aramco's decision to lower prices has a ripple effect on LPG costs in these regions as well.

The timing of this price reduction coincides with the recent Ramadan festivities in Saudi Arabia. During this period, many businesses close their doors, and suppliers take vacations. This naturally reduces demand for spot purchases, which are immediate, one-off transactions. Additionally, contract purchases for LPG were likely finalized before the start of Ramadan, further contributing to the decline in spot market activity. As a result, traders have lowered their prices to remain competitive during this time of reduced demand. This decrease in LPG prices is a positive development for Saudi households and businesses. It offers some financial relief, particularly after a period of higher costs. The impact of Aramco's decision will likely be felt not just within Saudi Arabia but also in other regions that rely on their pricing benchmarks.

As per ChemAnalyst, the LPG quotations for May are expected to showcase a bearish trend as the strengthening downstream values spurred most integrated petrochemical plants to raise run rates are expected to offset the growing demand. Moreover, the LPG cracker operators planning to raise run rates in May in the wake of improving margins could increase the availability.