Like everything else in 2020, the propane market has been exceedingly difficult to navigate. So far this year, we’ve seen Mont Belvieu propane prices down to 24 cents/gallon (c/gal) and up to 57 cents. Exports continue to increase, but stocks seem to be reasonably healthy, partly thanks to November so far being one of the warmest on record. Propane production was projected to dip in the fourth quarter but has held up pretty well. During the spring there was considerable concern about the possibility of a tight supply-demand situation this winter, but so far, market conditions seem relatively benign. Does that mean we are in the clear for winter 2020-21? Unfortunately, there may be a few gotchas still out there. As always, a lot depends on the weather. But there are other factors at work that could surprise us because some of the statistics we’ve relied on in the past to gauge what’s ahead are not what they used to be. In today’s blog, we begin a series looking at those factors.
It’s a truism in the propane business — as well as any other commodity market — that when inventories are low relative to total demand, prices increase. That is particularly relevant for today’s propane market, because demand has been transformed over the past few years by exports — in fact, the average volume of exports now exceeds total U.S. propane consumption. The implication is that it now takes more inventory in the ground throughout the winter to support the combination of U.S. demand and exports. But how much more inventory is enough? And how should we factor in the potential for further increases in exports? And at the same time, the market is still facing the possibility of declining production due to COVID-related drilling cutbacks. To make sense out of what is going on, let’s start with a review of how crude oil, natural gas, and propane markets have behaved so far this year.
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