How propane compares with heating oil

Regular readers of Trader’s Corner (TC) have heard us say a lot lately that propane is a cheap Btu. We are generally talking about how it takes little supportive news on propane fundamentals to cause its price to go up because it is already low compared to other energy sources.


Because of Btu content differences in various sources of energy, it’s not always easy to make a price comparison. To do so, you must convert other energy sources to a propane Btu equivalent basis. If you do that, you will see quite readily that propane is a cheap Btu.

Chart 1 – Propane Btu Equivalent in Cents

Currently, propane is trading at 71 cents at Mont Belvieu ETR and 70 cents at Conway. Chart 1 shows the propane Btu equivalent price of other energy sources.


Apart from natural gas, propane is significantly less expensive than other energy sources. We know that most readers of TC are in the propane industry, so this is good news. Some of you may sell both propane and heating oil, and you already know the price challenge on the heating oil side. If you are in the heating oil business and read TC to keep up with the competition, you already know it’s a challenging environment.

We are going to focus on heating oil data for the remainder of this TC. Whether you sell it or compete against it, you may find the information useful. But before we go on, mention of the relatively high gasoline price is worthy. Most consumers buy gasoline regularly so its relatively high price establishes a mindset that energy prices are high. That certainly gives the propane dealer the opportunity to pleasantly surprise his customers. That was the case last year, and it looks like it will be the case again this year. It is also an opportunity to make a little more margin without much pushback. We have had mild winters recently, and we aren’t seeing any expectations that will change this winter. It is important to try to make more margin if sales volumes are off. The relatively low cost of propane helps in that endeavor.

Chart 2 – US Distillate Inventories 2018 Forward

Back to the state of heating oil. We all know that propane inventories are setting five-year highs for this time of year, which reflects high supply compared to demand, a situation that is resulting in relatively low valuations. That is not the case with heating oil.

Chart 3 – US Distillates Production 2018 Through 2023

Obviously, propane and heating oil are on opposite ends of the spectrum in terms of fundamentals. Propane is oversupplied with high inventories, and distillates are under supplied with low inventories. There is a global shortage of distillates. One reason is that when natural gas supplies from Russia stopped going to Europe, distillates were used to generate electrical power. This has put a strain on distillate supply globally. Keep reading...

Cost Management Solutions LLC (CMS) is a firm dedicated to the unbiased analysis of the energy markets for the propane industry.

Mark Rachal, Director of Research and Publications at CMS, regularly provides insightful looks into various facets of the marketplace.