Propane inventory adjustment could spike prices

Regular readers of Trader’s Corner will recall that, just before Christmas, we were lamenting the lack of winter demand in recent years. We were nostalgic for a winter with tension and angst because of supply tightness. In that article, we included Chart 1 on Midwest propane inventory.


We followed Chart 1 with this statement: Midwest demand is largely weather dependent. What the heck is that over the past three weeks? Need we remind anyone this is occurring in December? Bah humbug!

Chart 1 – Midwest Propane Inventory for Week 49 of 2023

Don’t tell your grandchildren, but apparently whining does pay off. The U.S. Energy Information Administration (EIA) made an inventory adjustment in its report for the week ending Friday, Dec. 15. The data for that report was released on Wednesday, Dec. 20. Apparently, Midwest inventory had become overstated starting with the week ending Nov. 15. For the week ending Dec. 15, the EIA reported just over a 9-million-barrel draw on total U.S. propane inventory. The bulk of the draw came from Midwest inventory, which included about a 5-to-6-million-barrel adjustment.

Chart 2 is where inventories stand after the adjustment.


Obviously, the adjustment changes the complexion of the inventory situation. If we focus on the red line for the year, Midwest inventories were above both 2022 and the five-year average levels all through 2023. Now, inventories are 1.893 million barrels, 8 percent, below 2022 and 0.2 percent below the five-year average.

Chart 2 – Midwest Propane Inventory at End of 2023

Chart 3 plots propane’s value relative to crude on a simple percentage basis. Over the past 10 years, Conway has averaged 47 percent of the value of West Texas Intermediate (WTI) crude. The relative value is slightly higher this time of year at around 50 percent. In 2023, Conway averaged 38 percent of WTI crude. That was understandable given the persistently high level of inventories all through the year.

Chart 3 – Conway Propane % of Crude High Low Percentage 2018-2023

Presently, Conway is valued at 40 percent of the value of WTI crude. With the inventory adjustment and the current level of inventories, is that justified? In November, Conway was valued at 34 percent of WTI crude and moved up in December. But Conway’s price hasn’t responded much to the inventory adjustment. 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.