La Dolce Vita

Here’s the back story of why our propane industry is living “the sweet life.”

Lack of Refining Capacity

Global refinery crude thruput in July was close to the lowest seasonal level since 2020. That’s not due to lack of demand, but lack of refinery runs.  

Global demand for refined products was 23% greater!

The bar on the left shows global supply. The bar on the right shows global demand.

Running Fast & Furious

Meanwhile, U.S. refinery utilization rates have approached 98% of capacity. That’s the highest level since 2019.

Refineries are running near maximum capacity to try and meet demand. Many are also postponing regular maintenance; in some cases, up to a year.

 It seems like something must give. Just like the car you drive, the industrial machinery at refineries can’t run hard without regular maintenance.

Supply of Refined Products Could Get Tighter for Longer

Any new damage to world refineries, whether from external forces (such as drones) or internal forces (such as fires or breakdowns), and the supply of refined products that propane competes against could get tighter for longer.

I’m thinking mostly of gasoline and diesel versus propane for Autogas and electricity generation, and heating oil versus propane for space heating.

A Concern Regarding Heating Oil

While prices stay high, it’s likely that many heating oil customers will work off the bottom of their tanks heading into winter. That’s understandable. But we’ve seen before what can happen when “just in time” inventory becomes the mindset of the majority. 

Why Propane Supply & Prices are in a Unique Position

Propane prices typically track crude oil price direction to remain competitive with petrochemical feedstock options. This is because “petchems” are the largest consuming sector for propane.

But most of the propane supply in the U.S. comes from natural gas processing plants, not refineries. And natural gas inventories (see chart below) are about 7% above the 5-year average.

That’s a big reason why propane supply has been plentiful and prices have been trending around 36% as a percentage of crude, compared to a historical average near 50%.

The Skinny

Our propane industry is in an enviable position right now. We have lots of inventory, lots of demand, and low prices. Nearly every energy source that we compete against has tighter supply and higher prices.

We’re living “the sweet life.”

But surprises can happen quickly, especially downstream of the major storage hubs. Be prepared, as spot prices could be higher than term values or fixed prices during any period of strong regionaldemand.  

And don’t hesitate to call your Ray Energy representative if you think your propane supply needs are under-contracted and your risk exposure is too great.

Ray Energy can help!

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