At the beginning of November, LPG inventories in the U.S. were 22% lower than the same time last year. At the same time, domestic crude oil inventories are showing a response to decreased oil production in the Middle East. This leads many wholesale propane users to wonder what we can expect propane inventories to look like this winter, as well as in the year to come.
Domestic Propane Supply This Fall
Some of the reasons for this fall’s inventory reduction include high LPG exports from the U.S., which have increased from September through November. Most of these propane exports are fueling increased demands in Asia. The U.S. is supplying the increased demand from Asia, while propane exports from the Middle East remain flat.
How Inventory Will Affect Wholesale Propane Price This Winter
It’s always a bit speculative to forecast how propane inventories will affect prices, but industry analysts make careful predictions based on available data. Mt. Belview propane has already surpassed $1/gallon (commodity price) more than once this fall. Forecasters predict that it will rise to over $1.20/gallon this winter, and possibly $1.30/gallon. These predictions are based on technical analysis modeled with both statistical principles and trader psychology.
The importance of the $1/gallon level is that since 2008, Mt. Belview propane has traded above that level approximately half of the time, and below that level approximately half of the time. The last time propane prices remained above $1/gallon was fall 2013 to fall 2014, and since then it has been below that price. Until now.
OPEC’s Impact on Supply in 2018
Early this year, OPEC agreed to reduce crude oil production, and the price effects were not immediately felt due to a large global surplus of crude. Part of the reason for increased crude oil prices is the fact that Saudi Arabia is complying at a near record level with the OPEC act to reduce production. That news is cautiously welcomed by oil producers in the United States, and if conditions remain favorable, the U.S. petroleum industry can be expected to respond by slowly increasing supply of crude. For propane, increased North American supply of crude oil usually results in increased domestic production of LPG.
How to Handle LPG Supply and Price Volatility
Propane was once a commodity that followed a methodical and seasonal business model. However, the propane marketplace is global, so domestic propane supplies are affected by a whole array of factors now, including things like:
- Changes in shipping rates related to the expanding size of the global cargo fleet
- Global weather events like Hurricane Harvey
- Speculative buying from other countries as far away as Japan
Propane supplies and prices have become much more complicated to gauge, and global competition creates price volatility at times.
Working with an experienced and forward thinking wholesale propane supplier can help even out volatility in the propane market. Smith Gas Liquids specializes in tailoring a supply plan for our customers’ needs, and evening out market fluctuations through our ability to buy competitively. When your business needs reliable propane supply, contact Smith Gas Liquids.
