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Propane market firms on tightening inventories, cold temperatures

Propane prices gained about a penny per gallon in the week ended Dec. 23 as trade was bolstered by relatively high winter heating demand and a resultant drop in inventories. Activity was subdued as traders wrapped up for the Christmas holiday.

Lone Star pipeline grade propane at Mont Belvieu, Texas, rose 1.30 cents to trade at 64.30 cents per gallon in the week ended Dec. 23, while non-LST propane increased 1.10 cents to trade at 63.55 cents per gallon. Prices at the hub in Conway, Kan., gained 0.95 cent and traded at 62.35 cents per gallon.

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The frac spread increased 0.70 cent during the week ended Dec. 22 to trade at 25.50 cents per gallon, compared to 24.80 cents per gallon on Dec. 15.

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The S&P Global calculated fractionation spread, or frac spread, is the difference between the weighted average price of natural gas liquids and the price of natural gas on a Btu basis. It is a general indication of the profit margin that a natural gas processor would expect to receive when the liquids are fractionated.

The propane market was boosted by a wave of cold temperatures early in the week, which helped to keep demand levels high and resulted in a sharp drop in inventories. A surge in heating degree days may cause residential prices to rise further in coming weeks.

Stocks of propane and propylene fell 3.08 MMbbl to reach 92.54 MMbbl in the week ended Dec. 16, according to the U.S. Energy Information Administration. The surplus to the five-year average dropped to 22.73 MMbbl from 24.09 MMbbl previously.

Demand fell 49 Mbbl/d on the week but held at a relatively high level of 1.45 MMbbl/d. The previous week's demand of 1.50 MMbbl/d was the highest of the winter season thus far.

"At Twin Feathers, we were impressed with yesterday's propane stock draw and expect a much greater draw next week," J.D. Buss, trading manager at Twin Feathers Consulting Inc., wrote in a note. "In many areas, retailers are running harder and stronger this week vs. last week and catching up from the colder temps. [Also], estimated waterborne exports for propane this week can be seen anywhere from 1 million to 2 million barrels higher than last week."

Exports fell 60 Mbbl/d to reach 842 Mbbl/d in the week ended Dec. 16 but had surged 177 Mbbl/d in the previous week as Phillips 66 loaded its first cargo on a very large gas carrier that departed Dec. 16. A record of 1.08 MMbbl/d was set in the week ended Sept. 16.

Some support was also given by a fall in propane production of 31 Mbbl/d, which followed a 66 Mbbl/d reduction in output in the previous week.

The crude oil market traded relatively sideways during the approach to the Christmas holiday, with February 2017 futures gaining 7 cents during the week to settle at $53.02/bbl on Dec. 23.

Natural gas offered more support, with January 2017 futures gaining 24.7 cents during the week to settle on Dec. 23 at $3.662/MMBtu.

Natural gas inventories fell 209 Bcf in the week ended Dec. 16, according to the EIA. The change was greater than the 200-Bcf withdrawal expected by the market.

Temperatures are expected to be above normal across the southern third of the country, according to the latest six- to 10-day forecast from the National Oceanic and Atmospheric Administration. The northern Pacific and northern Mountain regions could be below normal while the remainder of the country is expected to see near normal temperatures.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including SNL power and natural gas index prices, as well as forwards and futures, visit SNL Energy's Commodities Pages.