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Propane Inventories off the Chart: Prices Fell ~8% Last Week

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Nov. 20 2020, Updated 1:04 p.m. ET

Propane stocks

In the week ended August 21, US propane inventories rose by 1.9 MMbbls (million barrels) to 95.7 MMbbls. These levels are 21 MMbbls greater, or 28.1% higher, than they were in the corresponding period last year.

Midwest and West Coast inventories increased by 0.6 million barrels and 0.3 million barrels, respectively, while Gulf Coast inventories rose by 1 MMbbls. East Coast inventories were flat in the week ended August 21.

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Propane production

US propane production increased from 1.62 MMbpd (million barrels per day) in the week ended August 14 to ~1.63 MMbpd in the week ended August 21. These levels are 4.3% higher than the production levels in the corresponding week last year.

Propane demand

Propane demand for the week ended August 21 fell to 0.923 MMbpd from 1.010 MMbpd in the week ended August 14. These levels are ~6.3% lower than they were a year ago.

Lower demand is bearish for propane distributors such as Ferrellgas Partners (FGP), Suburban Propane Partners (SPH), AmeriGas Partners (APU), and NGL Energy Partners (NGL).

NGL makes up 2% of the Alerian MLP ETF (AMLP). SPH, APU, and NGL make up ~3.5% of the First Trust North American Energy Infrastructure ETF (EMLP).

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What this means

Propane production is outstripping demand by a considerable margin. This explains the steady build in propane inventories. But inventories are well above the five-year average, as we can see in the image above. They look increasingly likely to spill out of the EIA’s charts. If this trend continues, households will enjoy lower prices next winter, thanks to abundant supplies.

Prices are already low compared to last year at Mont Belvieu, Texas—a major pricing hub. Wholesale spot prices as of August 26 were $0.34 per gallon. Compared to August 26, 2014, when prices were $1.018 per gallon, prices are down ~67%. Compared to last week, prices fell 8%.

Background

Propane is a natural gas liquid (or NGL). NGLs are hydrocarbons in the same family of molecules as natural gas and crude oil. US households use propane as a heating and cooking fuel. It’s also an important feedstock for petrochemical plants.

For the latest updates on the energy sector, follow Market Realist’s Energy and Power page.

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