Bullish bias overtakes the propane market

Propane inventory stood at 56.2 million barrels as of June 18 – 10.3 million barrels (15.4 percent) less than the five-year (2016-20) average inventory levels for the same time of year, according to the U.S. Energy Information Administration (EIA).

Not only does EIA data show propane inventory near five-year lows, but propane prices at Mont Belvieu topped the $1-a-gallon mark for the first time since 2018 – and for the first time in June since 2014, Bloomberg reported.

“The bias of the market is very bullish,” says Mark Rachal of Cost Management Solutions on June 25, noting the propane fundamentals favoring higher prices: solid U.S. propane exports and domestic demand, and a leveling off of propane production.

Propane exports have climbed above 1 million barrels per day for much of the year; they were near 1.5 million in mid-June. Rachal says traders have conveyed an interest from buyers in Asia.

“The other side is you have a very strong outlook for crude. That drives the out months for propane, even more than propane fundamentals because crude is all about demand,” says Rachal, as Brent crude futures closed June 25 at $76.18 a barrel and West Texas Intermediate settled at $74.05 – the highest since October 2018.

“As we come out of the pandemic, we expect huge increases in demand to continue to tighten crude supplies and keep pushing crude prices higher. Generally, the energy market [also] tends to go higher.”

Rachal says the propane market had been oversupplied and crude prices in a downtrend until the recent surge.

“We got spoiled in 2020 with such extremely low pricing, and now it seems like a shock,” he adds.

To put the situation into perspective, Rachal references similar propane market fundamentals just several years ago. In 2018, propane inventory stood at 51.4 million barrels for the same week in June, with Mont Belvieu prices in the 90-cent range.

“So, we need to see a slowdown in crude or some improvement in propane supply-demand trends” for prices to come down, says Rachal, who didn’t see any factors on June 25 that would signal a change to the current upward trend.

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