Written on: June 21, 2022
Propane inventory in the U.S. was only 33mmbbls in early March. Clearly, builds taking levels to 51.8mmbbls in data released last week puts propane in a better position than it might have been in by this time. Prices were more than $1.60 per gallon at both Mt. Belvieu and Conway in March but are now about 40 cpg lower and trading at less than 45% of WTI crude oil. Current inventory levels, 3.4mmbbls lower than levels this week a year ago, are on close to the lower half of the five-year average. 
Recently demand for propane in China was curtailed due to continued outbreaks of the COVID-19 pandemic but more exports may materialize as China opens up again. So far, propane exports are 40mbbls per day higher this year than last year. Netbacks for butane are higher this year which could limit propane exports to some degree. Meanwhile, there is concern that late planting of corn could result in high demand for propane at harvest time. Even states with limited agriculture demand could find propane depleted due to demand elsewhere.
The war in Ukraine continues to affect propane as well as most other energy sources. Recently the European Union cut Russian exports of crude oil and natural gas. Russia has started to cut shipments via its biggest pipeline to Europe. The Economic Minister of Germany says cuts are politically motivated to drive prices higher. Russia is now selling much more to India than it has in the past. Asian buyers, mostly China and India, now represent half the purchasing of Russian oil.
The U.S. Energy Information Administration (EIA) recently revised estimates in its June Short-Term Energy Outlook (STEO). Brent crude averaged $113 in May and is expected to average $108/barrel in the second half of 2022 and then fall to $97/barrel in 2023. Certainly, there are plenty of wildcards with the war, sanctions, independent corporate actions and OPEC crude production. Weather, agricultural demand and export levels, of course, will continue to be the wildcards specifically affecting propane.
