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Propane prices weaken slightly despite tightening fundamentals and cold weather

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Propane prices weaken slightly despite tightening fundamentals and cold weather

Propane prices fell less than a penny per gallon in the week ended Dec. 30 in spite of a sharp decline in the level of inventories and forecasts which project a strong likelihood of below-normal temperatures.

Lone Star pipeline grade propane at Mont Belvieu, Texas, lost 0.20 cent to trade at 64.10 cents per gallon in the week ended Dec. 30, while non-LST propane fell 0.30 cent to trade at 63.25 cents per gallon. Prices at the hub in Conway, Kan., dropped 0.15 cent and traded at 62.20 cents per gallon.

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The frac spread declined 1.79 cents in the four days ended Dec. 29 to reach 23.71 cents per gallon and compared to 25.50 cents per gallon on Dec. 22. Natural gas prices increased 7.5% between the two dates while the average NGL barrel gained only 0.9%.

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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.

Most of the fundamental data published during the week were positive for prices.

Inventories of propane and propylene fell 5.67 MMbbl to reach 86.87 MMbbl in the week ended Dec. 23, according to the U.S. Energy Information Administration. The surplus to the five-year average dropped to 17.69 MMbbl from 22.73 MMbbl previously.

The cause of the decrease was mostly exports, which surged 471 Mbbl/d from the previous week to reach a new record high of 1.31 MMbbl/d. The previous record was 1.08 MMbbl/d set in the week ended Sept. 16.

"[The] EIA report showed a 5.7 MMbbl draw for the industry as a whole this past week, which is the second-largest weekly draw we have seen in at least the past three years," Jon Miller, marketing representative for NGL Supply Wholesale and author of the Propanebuzz.com newsletter, said in a note on Dec. 29. "It also puts the total December draw at 14.7 MMbbl, with one more inventory report to count towards December's totals. … If we draw 4 MMbbl next week, we will set a new record."

Demand for propane declined 93 Mbbl/d to 1.36 MMbbl/d. While it may not have been directly responsible for the drop in inventories, demand remained high relative to the 1.50 MMbbl/d that was reported two weeks earlier and which is the highest of the winter season thus far.

Temperatures are expected to be below-normal across the majority of the country except for the state of Florida, according to the latest six- to 10-day forecast from the National Oceanic and Atmospheric Administration. The eight- to 14-day outlook moderates the amount of cold that is forecast, with most of the Gulf Coast states expected to see above-normal temperatures.

"Weather forecasts are still showing cold, the EIA report was bullish, and exports are strong," J.D. Buss, trading manager at Twin Feathers Consulting Inc., wrote in a note. "But the strength of the current move, the fact that many ships were loaded last week and that loading will likely be less this week, and the fact that the international arb spreads will be feeling a squeeze also mean that we need to be vigilant as a decrease in hub values … could be as quick as the move up."

February 2017 natural gas futures finished the week with a gain of 4.6 cents and settled on Dec. 30 at $3.724/MMBtu.

Natural gas inventories reportedly declined 237 Bcf in the week ended Dec. 23, according to the EIA, and was more than the market consensus which called for a withdrawal of 231 Bcf.

February 2017 crude oil futures finished the week 70 cents higher and settled on Dec. 30 at $53.72/bbl.

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.