uploads/2015/10/U.S.-Resedential-Propane-Prices-2015-10-291.jpg

Will Propane Prices Recover Heading into Winter?

By

Updated

Propane inventories

In its Weekly Petroleum Status Report released on October 28, 2015, the EIA (U.S. Energy Information Administration) stated that US propane inventories fell by 0.02 MMbbls (million barrels) to 101.56 MMbbls for the week ending October 23, 2015. These levels are 21.29 MMbbls greater, or 25% higher, than they were in the corresponding period last year.

Article continues below advertisement

Propane prices and demand

Residential propane prices averaged $1.91 per gallon for the week ending October 23, 2015, which was $0.01 per gallon higher than prices for the week ending October 16, 2015, and $0.51 per gallon higher than the price in the corresponding period last year.

Residential propane demand is 1.0 MMbpd (million barrels per day) for the week ending October 23, 2015, which was 0.09 MMbpd lower than the demand for the week ending October 16, 2015, and 0.49 MMbpd lower than the demand in the corresponding period last year.

Refiners operated at maximum operable capacity due to the prolonged high–crack spread trend, which created massive stockpiles heading into winter.

Because of these massive stockpiles and less heating days in the month of October, the slight increase in demand has not contributed to a rise in propane prices. Because of this, American households can access propane at a lesser price than the previous winter.

The EIA expects that households warming with propane in the Midwest will spend an average of $320, or 21% less, this winter than the previous winter, reflecting costs that are around 13% lower and utilization that is 9% lower than the previous winter.

Family units in the Northeast are expected to spend an average of $342 (15%) less this winter, with normal costs that are around 5% lower and utilization that is 11% lower than the previous winter.

More on propane

Propane is broadly utilized as fuel for cooking and warming. It has a few additional applications such as fuel for aircraft, refrigerants, and fuel for vehicles. In America, propane is utilized as a heating oil by 5% of all homes. Propane is a critical fuel for speculators to screen.

Propane prices affect propane producers and distributors such as Enterprise Products Partners (EPD), Ferrellgas Partners (FGP), Targa Resources Partners (NGLS), Suburban Propane Partners (SPH), DCP Midstream Partners (DPM), AmeriGas Partners (APU), and NGL Energy Partners (NGL). Most of the above companies are components of the North American Energy Infrastructure ETF (EMLP).

NGL Energy Partners accounts for 1.3% of Alerian MLP ETF (AMLP).

Advertisement

More From Market Realist