Saudi Arabia, a major player in the Liquefied Petroleum Gas market, has seen a significant drop in prices for the second month in a row. Saudi Aramco, the state-owned oil giant, and market leader in LPG, slashed their official selling prices (OSPs) for May 2024 compared to April 2024. This move sent LPG prices tumbling to their lowest point since September 2023, marking a reduction of 8 months low during this timeframe. Saudi Arabia's Aramco cut prices by 5.6% to 14.0%, while Algeria's Sonatrach decreased theirs by a steeper margin of USD 35 to USD 80 per ton to settle at USD 580/MT Propane Ex-Work Dhahran and USD 585/MT Butane Ex-Work Dhahran in Saudi Arabia during week ending of May 24th2024.

The primary driver behind this price drop was an abundance of LPG on the global market. Several factors contributed to this oversupply. The first quarter traditionally sees periodic refinery maintenance, which can sometimes lead to temporary shortages. However, this year, the maintenance concluded without causing disruptions, leaving the market well-stocked. Moreover, the transition from winter to summer in Asia, a major LPG consumer, resulted in a decline in demand for heating fuel. This lessened demand created an imbalance between supply and consumption. Meanwhile, the switch from winter-grade to summer-grade gasoline also played a role. Butane, a key component of LPG, became less valuable as the blending sector, responsible for creating gasoline specifications, needed less of it for the summer blend which led the large firms to adjust their prices negatively. Following the Ramadan celebration, May saw a smooth supply chain operation for LPG in Saudi Arabia due to the opening and successful operation of multiple firms in the market. Since more readily available stockpiles were registered during this period than previously, lower production costs for LPG were achieved concurrently with a decline in the price of the feedstock, crude oil. This, together with a large number of businesses operating and a high level of industrial activity, improved LPG availability generally during this period.

As per ChemAnalyst, the LPG prices are expected to rebound in June on the back of high production costs from the upstream Crude oil prices post-Iranian President Ebrahim Raisi’s death. However, the increased supply of LPG and the resulting price reduction have a positive impact on various sectors. Consumers who were reliable for powering vehicles could benefit from lower fuel costs. Consecutively, Industries that utilize LPG as a raw material can potentially see their production costs decline.