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Propane market eases on lower crude oil prices, weaker demand

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021

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Essential Energy Insights - January 2021


Propane market eases on lower crude oil prices, weaker demand

Thepropane market dropped by less than a penny per gallon in the week ended April1, with pressure offered by lower oil prices and the prospect of weaker demandfor propane amid the approach of the shoulder season for heating demand.

LoneStar pipeline grade propane at Mont Belvieu fell 0.70 cent to trade at 44.15cents per gallon in the week ended April 1, while non-LST propane also dropped0.70 cent to trade at 44.10 cents per gallon. Prices at the hub in Conway,Kan., declined 0.90 cent and traded at 39.50 cents per gallon. It marked thethird consecutive week of declines across all three hubs.

Thefrac spread fell 1.63 cents to 20.73 cents per gallon on March 31 and comparedto 22.36 cents per gallon on March 23. Prices of natural gas rose 9.2% betweenthe two dates while the price of the average NGL barrel lost 0.4%.

Thefractionation spread, or frac spread, is the difference between the weightedaverage price of natural gas liquids and the price of natural gas on a Btubasis. It is a general indication of the profit margin that a natural gasprocessor would expect to receive when the liquids are fractionated.

Weaknessin oil prices added the most pressure to the propane market during the weekended April 1, with prices dropping $2.67/bbl to close at $36.79/bbl. A lot ofthat selloff came on Friday when prices ended with a loss of $1.55/bbl.

"Newsfrom Saudi Arabia still looking for cooperation to join in the production 'freeze'has definitely brought some more reality to the market along with the fact thattraders may be taking some profit," J.D. Buss, trading manager at TwinFeathers Consulting Inc., said in a note.

SaudiArabia said that it would not agree to a production freeze unless all majorproducers including Iran did so as well. Iran has previously signaled that itwants to let its production rise back up to pre-sanctions levels.

"I'mnot taking $30 off the table on crude anymore," John Turner, senior traderat Heritage West Financial, said in an interview. "There's so much of thestuff around that even though draw-downs are taking place in the products, itwon't matter."

Inventoriesof crude oil increased 2.30 MMbbl in the week ended March 25 to another newrecord, according to the U.S. Energy Information Administration. The increasewas countered by a decline of 2.51 MMbbl in gasoline and a drop of 1.08 MMbblin distillates.

Propaneand propylene inventories were neutral for prices as they grew 599 Mbbl duringthe week ended March 25 to 62.83 MMbbl. The increase in propane stocks tookthem above the lowest point so far during the heating season of 62.23 MMbbl inthe previous week.

Thegain in inventories nearly matched the change in the five-year average, withthe surplus to the average falling to 23.97 MMbbl from 23.98 MMbbl in the priorweek.

"Officiallymoving out of March we see the end of winter even though there could be traceamounts of cold still lingering in different regions," Buss said. "Domesticretail demand will revert to the typical shoulder/start of summer levels andleave us looking for petchem and export to be the main supporters of demand."

Demandfor propane fell 120 Mbbl/d to 1.07 MMbbl/d in the week ended March 25.Temperatures were generally around 2 degrees above normal across the northerntwo-thirds of the country during the survey week, according to the NationalOceanic and Atmospheric Administration.

Combinedwith the drop in demand, exports that are relatively weaker than past weeks mayweigh on propane prices.

"Lookingat those components we see exports for this week being lower than last week andlower than prior expectations," Buss said. "That leads us to keeplooking for weekly builds in the inventory report and help create more of aceiling on price movement right now."

Thenatural gas market offered some support to propane and countered the pressurefrom lower crude oil prices by advancing 7.4 cents to settle at $1.956/MMBtu onApril 1.

Naturalgas inventories fell25 Bcf in the week ended March 25, according to the EIA, and was 1 Bcf morethan the consensus, which centered around a draw of 24 Bcf. The reduction instorage compared against the five-year average withdrawal of 22 Bcf and theyear-ago pull of 10 Bcf.

Temperaturesare expected to be generally above normal in the western half of the countryover the next six- to 10-days, according to the NOAA, while the eastern halfwill see below normal conditions. The dividing line runs along the easternGreat Plains states south to central Texas.

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.