Is The Low-Price Honeymoon Over for Propane?
In like a Mechanical Bull
Astrological spring is in two days.
But the wild weather recently, and the gyrations of the global energy markets, make it seem like this spring is being ushered in by a mechanical bull, not a lion or a lamb.
WTI crude oil prices soared as high as $119/bbl. a few weeks ago. The last time there was a spike above $100/bbl. was in March 2022 ($123/bbl.) with the Russian invasion of Ukraine.
Belvieu’s Break from WTI
The fact that propane prices aren’t following in lockstep with higher crude prices is telling. There’s nervousness regarding a potential oversupply situation and that may be the main reason why propane is priced to sell.
Some concerns:
- Total propane stocks are already 67% ahead of last year and 57% higher than the 5-year average.
- High crude oil prices should lead to higher domestic crude production, especially in the Permian Basin, and more associated natural gas. Also, natural gas rig counts are already about 25% above last year, so strong stock builds for propane this year are likely.
Propane’s value to crude (a metric that indicates whether the price of propane relative to the price of crude oil will encourage or discourage propane demand) has fallen to 34% percent. The historical norm is closer to 50%.
The last time it was 34% or lower was 3 years ago.
Few Roads out of Dodge
Most industry people know that U.S. LPG export terminals are contracted near maximum capacity, even after the recent expansions in Houston and Nederland, Texas. In fact, the terminal utilization rate for Gulf Coast terminals was just over 100% to start the year.
Sea Change
Fewer people know that butane’s share of a propane-butane split for LPG exports was increasing in favor of butane this winter. The attraction for butane heavy LPG has been partly due to less demand from China and more demand from countries in warmer climates, such as India, primarily for cooking.
Butane prices have been moving higher than propane recently. But if the butane-heavy LPG trend were to continue, this “sea-change” could effectively tie up dock space in favor of more butane and less propane, which could also contribute to higher propane inventories.
The Skinny
Before the current situation in Iran, the International Energy Agency (IEA) projected that global oil supplies in 2026 would be 3.73 mbpd higher than global demand.
What a difference a few weeks makes. Sadly, it seems likely that high crude prices will be here for a while.
If there’s a silver lining for the propane industry it’s that this is a great opportunity for propane to shine as a versatile and affordable energy source.
So, the honeymoon for low-priced propane may not be over yet.
IMPORTANT NOTE: Following a persistently cold winter in the eastern third of the country, propane contract season is right around the corner. A diversified basket of carefully managed propane assets allowed Ray Energy to excel during this challenging time. We hope that you will continue to let Ray Energy take exceptional care of your propane requirements.
Thank you for your business!
