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SUPPLY CONCERNS BASED ON MANY FACTORS AS BUILD SEASON UNDERWAY

Written on: April 12, 2022

Each week brings new data showing prices significantly higher from the previous year and inventory several million barrels lower. As is often the case, issues such as Ukraine and COVID add to the mix of factors that keep us guessing what the market will do for the coming winter season and what the smart moves should be to ensure a profitable season.

For the week ended March 28, 2022, retail propane prices averaged $2.98 a gallon, up 69 cents from $2.29 a year ago. Wholesale prices were up 61 cents to $1.63 a gallon from $1.02 a year ago. Meanwhile, overall U.S. propane inventory is at 34.4mmbbls, down from 39.6mmbbls a year ago.

Volatility has affected the market in a major way with crude oil prices touching $130.50 per barrel in March and then pulling back to $95 per barrel by April 11. Analysts are debating whether crude prices are simply declining to where they should be given the current supply levels and anticipated production and demand or if they are just in a temporary pull back before an attempt to run up to the record of $147.27 per barrel reached in 2008, a level reached before a major decline (along with the world economy) as crude plummeted to $32 per barrel. Some believe $200 per barrel could be a reality this year.

The OPEC Monthly Oil Market Report stated that oil demand recorded robust growth of 6.5mmbbls per day year over year in December 2021. World oil demand growth in 2022 remains unchanged at 4.2mmbbls per day amid high uncertainty and extreme fluidity of developments in recent weeks. The report notes strong oil requirements for the U.S. For OPEC and its allies, the plan is to adjust upward the monthly overall production by 0.4 mmbbls per day for April 2022. U.S. crude oil has held steady for six consecutive weeks with production at 11.6mmbbls for the week ended March 18. With OPEC’s reluctance to adjust the production schedule, it is possible that crude oil attempts a runup to the $147.27 per barrel mark.

Chinese COVID with a lockdown in China’s second largest city, Shanghi, could be a bearish factor in the energy marketplace. The decision by the U.S. and other nations around the world to release crude barrels from strategic reserves will have a million barrels of reserves hitting the world market every day and this could also have a bearish effect.

Redistribution of propane amid the conflict in Ukraine could be bearish or bullish depending on various circumstances. Redistributing while avoiding downtime could be bullish but a discount for product to India from Russia with propane priced significantly lower could have a bearish effect on the market. If propane is backed up in the U.S. instead of moving to Asia, there will likely be a bearish scenario in the propane marketplace. Propane moving from 55% to 35% of crude oil would certainly present a buying opportunity for U.S. marketers.

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