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Propane market finishes week on mixed note in spite of inventory pressure

Pricesof propane were able to avoid steep losses in the week ended July 15 in spiteof weakening fundamentals that included continued gains in inventories and morecancellations of export cargoes.

LoneStar pipeline grade propane at Mont Belvieu increased 0.70 cent to trade at49.50 cents per gallon in the week ended July 15, while non-LST propane rose0.55 cent to trade at 49.10 cents per gallon. Prices at the hub in Conway,Kan., dropped 0.85 cent, and traded at 44.60 cents per gallon.

Thefrac spread increased 1.08 cents to 18.63 cents per gallon on July 14 andcompared to 17.55 cents per gallon on July 7, according to data from S&PGlobal Market Intelligence. The average NGL barrel gained 1.6% between the twodates while natural gas prices declined 1.8%.

TheS&P Global calculated fractionation spread, or frac spread, is thedifference between the weighted average price of natural gas liquids and theprice of natural gas on a Btu basis. It is a general indication of the profitmargin that a natural gas processor would expect to receive when the liquidsare fractionated.

Theprice of propane was able to overcome pressure from inventory levels whichposted another large weekly increase.

Inventoriesof propane and propylene gained 2.57 MMbbl to reach 87.36 MMbbl in the weekended July 8, according to the U.S. Energy Information Administration. Theincrease pushed the surplus to the five-year average up to 24.08 MMbbl from23.41 MMbbl previously. The record surplus of 39.60 MMbbl was reached in theweek ended Nov. 20, 2015.

"Overthe last five years, the last three weeks have seen an average build of 5.8Mbbl. This year we've seen a 7.8 million build," J.D. Buss, tradingmanager at Twin Feathers Consulting Inc. said. "So definitely a morebearish tone for the market than what we've seen for the last three months."

Regionalinventory data suggest that exports may have picked up again, as inventories inthe Gulf Coast's PADD 3 gained only 329 Mbbl in the week ended July 8 andcompared to an increase of 1.76 MMbbl in the preceding week.

Maintenanceat Enterprise Products PartnersLP's export dock on the Gulf Coast was blamed for the largeincreases in total inventories in the prior two weeks.

Themarket has gotten mixed signals on exports in recent weeks, as the startup ofthe widened PanamaCanal on June 26 has given hope to drillers and transporters that demand forpropane and butane would increase as shipping costs and travel times to Asianconsumers decline.

Anindication that opposes higher exports has come from market sources, who saythat some cargoes to Asian customers are being canceled.

Onesource told S&P Global Market Intelligence that there could possibly be 10cargoes canceled this month, although several of them are believed to haveoriginated from the Middle East rather than the U.S.

WhileFar East demand for exports may be falling, pricing spreads continue to narrow,according to the source, who said that the incentive to transport propane byship to overseas consumers from the U.S. or Middle East will decrease.

Acombination of rising U.S. inventories and falling demand for exports couldeventually put pressure on propane prices as a result.

Naturalgas prices weakened 4.5 cents during the week and settled on July 15 at$2.756/MMBtu.

were reported toincrease 64 Bcf in the week to July 8, according to the EIA, which was abovemarket expectations that called for a 58-Bcf build in stocks.

Crudeoil prices helped to create support for propane, with prices advancing 54 centsduring the week to settle at $45.95/bbl on July 15.

Busssaid that oil prices were helped during the week by options expiration and aforce majeure declared on shipments of Nigeria's biggest crude export grade.

Oilinventory data were mixed, with crude oil stocks falling 2.55 MMbbl in the weekended July 8 and countered by increases in gasoline and distillates of 1.21MMbbl and 4.06 MMbbl respectively.

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