Written on: July 21, 2022
Crude oil prices moved lower Wednesday after U.S. data showed gasoline demand had declined during the summer driving season. In addition, interest rate hikes by central banks to fight inflation triggered concerns of lower demand for energy. In addition, prices also felt pressure after TC Energy said the Keystone pipeline, a major export artery in Canada, was operating at a reduced rate for a third day. The September WTI contract settled at $99.88 a barrel, down 86 cents a barrel. A build of 3.5mmbbls for motor gas exceeded expectation in EIA inventory data. Many Americans have been noticing gas price declines in recent days.
Meanwhile, retail propane marketers are facing a winter of likely supply tightness in 2022-23. EIA inventory data released on Wednesday, June 20 showed 59.2mmbbls in the U.S,. down slightly from 62.7mmbbls a year ago. Inventory has been 12% below the five-year average lately and there are concerns about a significant crop drying year this year due to the delay in the planting of corn this season. Furthermore, the ongoing war between Russia and Ukraine has resulted in less energy being produced and exported from Russia. It will become more expensive to keep propane in the U.S. Higher prices will potentially curtail the world petrochemical sector. Around the world, higher prices are leading to some demand destruction as many look for alternatives.
This could be a year where high prices remain for propane but are accompanied by a recession. In addition to stagflation amid potentially lower supply levels, a shortage of available drivers with CDL/Hazmat licenses is also a concern. With a backwardated market with current prices higher than future prices, storing propane is not attractive but it is better than running out of propane. This is a good year for strong planning and communications efforts to be prepared for all potential scenarios.