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Propane market gains more than 1 cent as higher exports counter weak demand

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Propane market gains more than 1 cent as higher exports counter weak demand

Thepropane market moved slightly higher during the week ended Sept. 23 as supportwas taken from stronger exports as well as a rebound in crude oil and naturalgas prices. Demand for propane fell to a more-than-five-year low and added somepressure to the market.

LoneStar pipeline grade propane at Mont Belvieu, Texas, rose 1.50 cents to trade at50.05 cents per gallon in the week ended Sept. 23, while non-LST propane gained1.60 cents to trade at 49.95 cents per gallon. Prices at the hub in Conway,Kan., also increased 1.60 cents, and traded at 44.85 cents per gallon.

Thefractionation spread, or frac spread, rose 0.38 cent to trade at 17.41 centsper gallon on Sept. 22 and compared to 17.03 cents per gallon on Sept. 15.

Thefrac spread is the difference between the weighted average price of natural gasliquids and the price of natural gas on a Btu basis. It is a general indicationof the profit margin that a natural gas processor would expect to receive whenthe liquids are fractionated.

Thepropane market gained support from signs that the export market remainshealthy. Exports gained 651 Mbbl/d to reach a record 1.08 MMbbl/d in the weekended Sept. 16, according to the U.S. Energy Information Administration.

Exportdata can be volatile because of delays in shipments due to weather or loadingschedules, which can shift cargos into different weeks. Sources told S&PGlobal Market Intelligence that exports were reduced earlier this month asshipping data showed a delay in transit times due to hurricane activity as wellas a shutdown of the Houston Ship Channel due to a spill and fire.

Inventoriesof propane and propylene gained 659 Mbbl to reach 101.75 MMbbl in the weekended Sept. 16. While the increase helped to push inventories closer to therecord high of 106.20 MMbbl reached last year in the week ended Nov. 20, 2015,the surplus to the five-year average shrunk to 27.54 MMbbl from 27.69 MMbblpreviously.

Supportfor prices also came from gains in crude oil, with November WTI futures rising86 cents during the trading week to settle at $44.48/bbl on Sept. 23.

Oilprices were helped by a decision from the Federal Reserve to leave short-terminterest rates unchangedduring its meeting on Sept. 20-21. Oil prices were also boosted by a drop ininventories of 6.20 MMbbl in the week ended Sept. 16.

"Despitethe Fed rhetoric about making sure traders knew that this was a 'live meeting'and that a rate hike was possible, the market knew better," Phil Flynn,senior market analyst at Price Futures Group, said. "Despite the biggestamount of Fed dissension since December, 2014, the Fed failed to act. Anddespite the proclamation by Fed Chair Janet Yellen that she fully expects thatFed will raise rates this year, one might wonder why some might still beskeptical."

Lowinterest rates have causedtraders to take on more risk in a search for yield or to move toward marketsconsidered safe-havens against inflation such as physical commodities.

Afterreaching 18-month highs on the continuation chart, October natural gas futuresturned lower later in the week and gained 0.7 cent during the trading week tosettle at $2.955/MMBtu on Sept. 23.

were up 52 Bcf inthe week ended Sept. 16, according to the EIA. The addition fell short ofmarket expectations, which called for a 49-Bcf build in stocks.

Offsettingthe support for propane prices was a sharp decline in demand, which fell 464Mbbl/d to 675 Mbbl/d. It was the lowest level of demand since the week endedJuly 8, 2011, when it reached 607 Mbbl/d.

Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including powerand naturalgas index prices, as well as forwardsand futures,visit our Commodities Pages.