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Why Was Greater Propane Demand Unable to Push Prices?

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Dec. 4 2020, Updated 10:52 a.m. ET

Propane inventories

In the EIA’s[1. US Energy Information Administration] heating oil and propane update released on December 9, 2015, US propane inventories fell by 3.45 MMbbls (million barrels) for the week ended December 4. The inventory levels were well above the upper limit of the five-year average range. Also, total propane inventories were 100.6 MMbbls for the week ended December 4. These levels were 21.4 MMbbls, or 27.1%, more than they were in the corresponding period last year.

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Propane demand and prices

US residential propane demand is 1.5 MMbpd (million barrels per day) for the week ended December 4. This demand was 0.24 MMbpd more than the demand for the week ended November 27, 2015. Additionally, the current propane demand is 0.24 MMbpd more than the demand in the corresponding period last year.

US residential propane prices averaged $1.96 per gallon for the week ended December 4, or less than $0.01 per gallon higher than prices for the week ended November 27, 2015, and $0.41 per gallon, or 17.4%, lower than propane prices in the corresponding period last year.

What does this mean?

Propane prices are struggling due to oversupplies. Given recent infrastructural changes like the Cochin pipeline reversal and infrastructure improvement in the Midwest region, propane availability from Canada is much greater compared to the previous winter. Greater domestic production also resulted in an oversupplied market, plunging propane prices.

The present inventory levels are almost 27% more than the previous year. However, demand rose by 0.24 MMbpd compared to last year, helping to reduce inventory levels. On the other hand, the anticipated demand levels are far more than current demand.

Propane demand is quite low because of warm temperatures registered in most US regions. Last week’s inventory drawdowns are less than expected, as November’s demand was expected to be more than the actual demand because of expected colder temperatures. So, the fall in inventories was unable to push prices higher.

A rise in propane prices leads to greater revenues for propane distributors and producers such as Ferrellgas Partners (FGP), Suburban Propane (SPH), AmeriGas Partners (APU), and NGL Energy Partners (NGL). APU accounts for 1.4% of the First Trust North American Energy Infrastructure ETF (EMLP). NLP accounts for 1.3% of the Alerian MLP ETF (AMLP)

Find more update on heating oil prices in the next part of this series.

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