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AMID A WAR, LOWER SUPPLIES AND HIGHER DEMAND, WILL PRICES STAY HIGH?

Written on: March 28, 2022

EIA inventory data for March 19, 2022 showed propane at 33.6mmbbls in the latest data, down 7.7mm froy year-ago levels of 41.3mmbbls. Meanwhile, demand for U.S. propane was 1.384mmbbbls/day, up from 1.309mmbbls a year ago. Retail prices in the U.S. averaged $2.98 per gallon, up from $2.32 per gallon a year ago and U.S. wholesale prices averaged $1.52 per gallon, up from $1.04 per gallon a year ago.

Trending in Propane asked J.D. Buss, president of Twin Feathers, if he expects propane prices to remain high this year. In an attempt to answer the question, Buss shared these factors that could keep the bullish train driving to higher levels:

1. Failure to see a demand curtailment. The IEA has already brought up 10 major points to reduce consumer demand in an attempt to lower the call on crude supply. However, we see efforts in Germany and even the U.S. to lower taxes or fees on fuels that will likely keep demand at more elevated levels. If we see efforts to continue to reduce fuel taxes or subsidies, then demand curtailment will take longer to occur and extend the potential bull market.

2. Long term efforts to reduce dependence on Russian energy products. At face value, this should be a bearish impact on crude and commodity prices. However, the short to medium term impacts could be very bullish as the global markets work to redistribute global supply of crude and LNG while avoiding any downtime – actions that will likely demand higher prices.

3. Continued focus on a strong “green” energy solution that fails to consider a fossil fuel transition period. Most people would have expected a comment regarding the continued conflict between Russia and Ukraine. While certainly a concern, the lack of production investment due to uncertainty of future return on investment keeps producers returning cash value to investors rather than placing those funds into production assets. A lengthy “failure to curtail demand” (mentioned above) along with a true, renewed call for higher LNG production could ultimately drive higher production, but until then….watch out for prices to keep rising.

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