The Israeli-Iran Conflict and Propane Prices

Unexpected geopolitical events can move energy prices higher, but emotional market responses are rarely sustainable without supporting fundamentals.  

Well, last Saturday there were Israeli attacks on Iranian oil and gas facilities, including an oil refinery near Tehran and the South Pars natural gas field, which is the world’s largest.

You would think these drone attacks against Iranian petroleum infrastructure would fall into the “supporting fundamentals” category, but energy markets had a surprisingly subdued reaction to start the week, perhaps anticipating a quick, positive outcome to the conflict.

We’ll see. The market seems overly calm to me.

WTI crude oil prices moved up from roughly $67.00/bbl. last Thursday (before the price spike on Friday) to $73.22/bbl. on Tuesday morning, while Belvieu prices rose from $.77/gallon last Thursday to $.81/gallon yesterday. 

Some Perspective on Middle East Crude Exports

1. Iran produces about 3.2 million barrels per day of crude oil.
2. The destruction of Iranian oil and gas facilities could impact global supply-side fundamentals, but OPEC has roughly 3 to 5 million barrels per day of spare crude oil capacity, of which Saudi Arabia has the lion’s share (about 50%).  
3. Another concern has been that Iran may threaten to “close” the Strait of Hormuz which connects the Persian Gulf with the Indian Ocean. The EIA calls this narrow sea passage “the world’s most important oil transit chokepoint.”
4. It’s true that closing the Strait of Hormuz would shut down exports from Iraq, Kuwait and Qatar (and make things difficult for Saudi Arabia and the UAE) but it would also stop exports from Iran to its largest customer, China, and increase U.S. exports.

Some Perspective on Propane Prices

Propane prices may seem high given the recent uptick, but bear in mind that the Belvieu monthly average last June was $.7551/gallon, July was $.7889/gallon, and the 2024 monthly average was $.7719/gallon.

In the grand scheme of things, current prices around $.81/gallon are only a few pennies per gallon higher than last year, and the forward months are not in steep contango, so winter prices are still attractive.   

Protecting Yourself Against Upside Risk

When the upside price risk is greater than downside opportunity, it makes sense to protect yourself by locking in a percentage of your future propane supply.

Yes, there is speculation involved whenever you buy something that hasn’t been sold yet. But in today’s uncertain world, it will act like a price collar: softening any sharp price moves and giving you peace of mind.

Click here for more information.

The Skinny

While I write this blog I can’t help but think about Marvin Gaye’s classic song from 1971 “What’s Going On.”

Unfortunately, it’s impossible to know what’s going on with the Israeli-Iran conflict, or where it’s headed, but you can protect yourself against upside price risk by locking in a percentage of your propane requirements.

You’ll also have peace of mind, knowing that your fixed price contracts with Ray Energy are backed each month by wet gallons delivered to you from a reliable and diversified basket of mid-stream propane assets. These include multiple pipelines, rail terminals, gas plants and refineries. So, we’ll always have you covered.

From all of us at Ray Energy: “Thank you very much for your business!”    

Get Stephen's insights on propane delivered to your inbox every month. Sign up for our monthly newsletter here.

For more frequent updates and industry news, join us on LinkedIn.

« Back to The Heffron Blog