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Why Is Propane Demand Not Growing?

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Propane inventories

In its Weekly Petroleum Status Report released on November 12, 2015, the EIA (U.S. Energy Information Administration) stated that US propane inventories rose by 1.6 million for the week ended November 6. That’s well above the upper limit of the average range.

Total propane inventories are 104.0 MMbbls (million barrels) for the week ended November 6, 2015. These levels are 22.9 MMbbls greater, or 28% higher, than they were in the corresponding period last year.

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Propane prices and demand

US residential propane prices averaged $1.91 per gallon for the week ended November 9, 2015, which was $0.006 per gallon higher than prices for the week ended November 2, 2015, and $0.49 per gallon lower than the price in the corresponding period last year.

US residential propane demand is 0.85 MMbpd (million barrels per day) for the week ended November 6, 2015, which was 0.03 MMbpd more than the demand for the week ended November 2, 2015, and 0.316 MMbpd lower than the propane demand in the corresponding period last year.

What does this mean?

The US propane industry has a fascinating circumstance developing. US propane stock levels are at record levels, and the demand for propane is almost flat. The agriculture segment didn’t have much interest in propane this fall, as corn moisture levels were pretty low.

Another factor is the winter climate forecast. Current amplified weather forecasts, which are calling for above ordinary temperatures over a large portion of the United States, will keep propane demand low. These conditions can certainly change during the winter months.

What’s the impact?

Propane prices affect propane producers and distributors, which decreases the revenues of companies such as DCP Midstream Partners (DPM), Enterprise Products Partners (EPD), Ferrellgas Partners (FGP), Suburban Propane Partners (SPH), Targa Resources Partners (NGLS), AmeriGas Partners (APU), and NGL Energy Partners (NGL).

Some of the above companies are components of the First Trust North American Energy Infrastructure ETF (EMLP).

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