Winter arrived early in many parts of the U.S. this year, with frigid temperatures and, in some places, snow measured in feet, not inches. Propane demand for heating is up, but surprisingly, inventories are high, prices are low and the outlook for the rest of the winter looks good. And propane just dodged a hail of bullets when Congress legislated away what had been a likely rail strike. Is it too early for propane marketeers to be dancing in the aisles about what looks like a safe outlook for winter season supplies? That’s the big question. Because spring is still more than three months away. And it’s a fact that sustained cold weather, logistical challenges and other factors can wreak havoc with any propane market. In today’s RBN blog, we examine the current state of the U.S. propane market, why things have improved so dramatically and, of course, what could still go wrong.
You could have made a pretty penny in Vegas if six months ago you’d bet that U.S. propane inventories would end November at almost 90 MMbbl. (Can you really bet on propane inventories in Vegas?) Anyway, that’s exactly where we ended up, with propane stocks nearly 25% above the same week in 2021. The market price of propane tells the rest of the story. Last year at this time propane was trading at about 62% of WTI crude oil. It had been 82% in October 2021. But Mont Belvieu propane currently sits at a paltry 39% of WTI. It was even lower last week.
How did we get here? It’s all about production growth. We said early in the year that we were going to need a bigger boat to balance the market with all of the production growth coming out of the Permian. After all, almost two-thirds of U.S. propane production moves to the export market. Well, it looks like we don’t have enough boats due to an ongoing logjam at the Panama Canal. That means more propane stays home in U.S. inventories, which are close to 5-year highs heading into the peak winter demand season. That’s why the U.S. propane market is relatively comfortable — there doesn’t appear to be much risk of supply shortfalls in the coming weeks. But let’s not get cocky. We are not out of the woods yet.
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