US spot propane prices increase on supply concerns

Focus story by Bobbie Clark

HOUSTON (ICIS)–US spot propane prices at the Mont Belvieu hub in Texas have risen to an 11-week high, as the looming winter has sparked supply concerns in an already skittish market.

Propane spot prices were 106.50 cents/gal on Monday, the highest price since 27 June, when they were in a range of 106.75-107.00 cents/gal.

Prices have increased by 4.9% since 2 September, when they were assessed at 101.50 cents/gal.

A trader said short covering initially boosted the price, but added that many sellers have been reluctant to sell for fear of another cold winter.

The recent harsh winter exacerbated what was an already tight propane market, given the large, wet corn crop and pipeline constraints.

These factors combined to send propane prices to pre-recession levels, as supplies from Mont Belvieu and other parts of the US were routed to the US Midwest and northeast.

The situation became so bad that the US government even became involved.

During the summer, a bi-partisan group of US senators introduced the Propane Supply and Security Act of 2014.

The legislation would open up a new world of information to consumers on market prices and inventory levels. It would also ease regulatory burdens during fuel shortages.

The bill was referred to committee on 31 July.

Meanwhile, some believe there is an over-cautious sentiment in the market.

In fact, a trader said it would not be a surprise if prices actually moved lower as the winter months approached.

Propane supplies have increased every week since the week ending 21 March, when supplies had fallen to 25.7m bbl, according to statistics from the US Energy Information Administration (EIA).

That is 23 consecutive weeks of increases.

Since 21 March, supplies have increased nearly three-fold.

During that time period, propane production increased so much that all-time records began falling nearly every week, beginning for the week ending 18 April, when production hit a record of 1.495m bbl/day. Prior to then the record was 1.487m bbl/day, set during the week ending 1 November 2013.

In the weeks since 18 April, the all-time production record has been set three times, hitting the current record of 1.592m bbl/day for the week ending 18 July.

Despite the record production numbers and steadily increasing propane inventories, the appetite for propane only continues to grow in the US and abroad.

US propane exports continue to be strong, hitting 389,000 bbl/day in June, according to the latest data from the EIA.

That is just a month removed from a record-high of 446,000 bbl/day in May.

Mexico and South America continue to be the top destinations for US propane. However, there is more interest coming from Asia, as US prices have become more competitive with Middle East prices.