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Propane prices advance on projected winter exports, OPEC concerns

Thepropane market advanced several cents per gallon in the week ended Oct. 7, astraders focused on the possibility that exports ramp up at the same time thatpotentially cold winter weather begins to emerge. Support also came from theoil market, which strengthened on the potential that OPEC cuts productionfurther.

LoneStar pipeline grade propane at Mont Belvieu, Texas, advanced 7.15 cents totrade at 57.10 cents per gallon in the week ended Oct. 7, while non-LST propanealso gained 7.15 cents to trade at 57.00 cents per gallon. Prices at the hub inConway, Kan., advanced 8.60 cents, and traded at 53.30 cents per gallon.

Thefractionation spread, or frac spread, rose 6.42 cents to trade at 24.10 centsper gallon on Oct. 6 and compared to 17.68 cents per gallon on Sept. 29.Natural gas futures advanced 3.0% during the survey period while the averageNGL barrel was up 16.4%.

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.

Inventoriesof propane and propylene were up 736 Mbbl to 104.00 MMbbl in the week endedSept. 30, according to the U.S. Energy Information Administration. The gain instocks helped to push them further within sight of the record 106.20 MMbbl setalmost a year ago in the week ended Nov. 20, 2015.

Whilethe inventory figure showed an increase, it was still somewhat positive forprices, as the surplus to the five-year average narrowed to 27.90 MMbbl from28.10 MMbbl previously. The contraction in the surplus helped to push it furtherbelow the record set last year in the week ended Nov. 20, 2015, at 39.60 MMbbl.

Exportsof propane jumped 166 Mbbl/d to 744 Mbbl/d, and in spite of the abundance ininventory levels, the market is becoming fearful that exports could accelerateas the winter demand season approaches.

"Concernstill centers on the scenario of exports rising in winter while also attemptingto supply domestic U.S. demand," J.D. Buss, trading manager at TwinFeathers Consulting Inc., said. "That bullish vibe remains in the industryand will likely not change until or if exports fail to reach certain levels."

Thelevel of propane product supplied increased 33 Mbbl/d to 1.01 MMbbl/d in theweek to Sept. 30. Although it has improved steadily since a reading of 675Mbbl/d was reported two weeks earlier, it remained 51 Mbbl/d below thefive-year average.

Thepropane market appeared to remain well supplied during the EIA's survey week,with production gaining 3 Mbbl/d to reach 1.69 MMbbl/d. While the productionincrease was small, it managed to lift output to 312 Mbbl/d above the five-yearaverage.

Theoil market also offered a lift to propane prices, as November WTI futuresgained $1.57 during the week to settle at $49.81/bbl.

"Oilprices continued their trek higher and actually hit the highest level in fourmonths," Energy Management Institute principal Dominick Chirichella saidin a note. "Another informal meet is gearing up between Saudi Arabia,Iran, Iraq and non-OPEC Russia on the sidelines of an energy conference nextweek in Istanbul."

Thepotential that the cartel discusses discipline with its announced or even afurther cut in output has helped put the oil market on an upward path.

Naturalgas prices gained 28.7 cents during the trading week and settled at$3.193/MMBtu on Oct. 7.

HurricaneMatthew left nearly 500,000 FPL customers without power, and Matt Rogers from the CommodityWeather Group said early on Friday that outages totaling 1,000,000 customerscould be reported. He added that that number would signal less demanddestruction than anticipated.

Naturalgas inventoriesgained 80 Bcf in the week ended Sept. 30, according to the EIA. The buildexceeded expectations that called for a 70-Bcf injection, but was below thefive-year average increase of 95 Bcf.

"Warmweather covering most of the U.S. for the next few weeks is providing a modicumof support and keeping any short term bears on the sidelines for the timebeing," Chirichella said.

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.