Jumpin' Jack Flash, It's a Gas: Propane - Propane Markets Writhe Due to Supply/Demand Uncertainty

So far in April, there was an unexpected run-up in propane prices early in the month, followed by a 21% swoon in the past 15 days of trading. The forward curve suggests smooth sailing from now through next winter season, but that seems unlikely, given recent market developments. Propane inventories, which are supposed to be building this time of year, actually fell last week, putting stocks at 16.9 MMbbl below this point in 2020, according to EIA statistics released last week. The data also showed that weekly exports spiked to the second-highest peak of all time at 1.7 MMb/d, while production declined two out of the past three weeks. And just over the horizon, there’s the potential for a big increase in Chinese propane demand as new petrochemical plant capacity comes online over the next three years. Today, we look at how these issues are likely to shape the propane market over the next few months and suggest that you consider attending our upcoming virtual conference, where we will pose these questions to industry leaders from production, midstream, exports, and retail market segments.

If you don’t follow U.S. propane prices on a regular basis, Figure 1 will catch you up with the recent twists and turns. Before the meltdown in April 2020, the Mont Belvieu propane price was averaging about 40 c/gal, then dropped to 25 c/gal during the COVID crash. But in very short order the price was back up to 50 c/gal all through last summer, before taking off like an Elon Musk rocket in January 2021. The price bounced around in the 90s c/gal range, spiking up to $1/gal during the February Deep Freeze. This month, however, propane prices have come back to earth, standing at only 78.3 c/gal as of yesterday. Will the price of propane continue to fall? Well, the ICE forward curve says no (dashed red line in Figure 1). It’s flat as a board out through February 2022, averaging 76 c/gal, more than 30% above the 2020 price level for the same months in the prior year. Just as we’ve detailed in other recent propane blogs, including Should I Stay Or Should I Go?, the #1 culprit for projections of stronger prices this year is exports, followed by the #2 factor: a kick from higher crude oil prices.  

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