Propane Profitability Column
5/25/2016
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Propane

As we look back on May, we start to wonder where spring has gone and if the warm weather will finally stay around. The summer brings on propane summer fill and winter contracting seasons and our focus shifts to summer and fall/winter pricing. Last year in the Midwest, we saw low propane demand for both crop drying and winter heat due to the unseasonably warm weather. This allowed the U.S. to build an all-time high inventory level, capping out at 106.2 million barrels in November. This build led to a decline in retail prices. 

We begin by concentrating on Midwest propane inventory to help make a forecast for the upcoming propane season. There have been a few changes since last summer. U.S. total inventory is 3.2 million barrels higher than we saw last year, but only one million barrels ahead of last year in the Midwest. We have seen a steady climb in pricing since our lows this winter. This can be attributed to a few different things. The most obvious has been a turn in the crude market. This has increased the value of all products that trade with any correlation to crude. We have seen this firsthand on fuel prices at the pump and this move up has the same effect on propane prices. The Midwest has also seen production barrels flow down to the Gulf Coast. This is where the true summer demand lies. Once in the Gulf Coast region, propane can be easily exported to other countries and easily consumed by petrochemical facilities. The export market continues to remain strong at 699 thousand barrels per day and we have seen an increase of 74 thousand barrels per day in petrochemical demand versus last year.

With the increase in propane demand in the petrochemical industry and a strong export market, combined with the potential for a large grain drying demand and an early cold snap in the fall, we can start to build a scenario for the Midwest supply to become tight in the upcoming winter season.  With relatively low retail prices this may be a good year to be proactive about locking in propane supply for the upcoming grain drying and winter heating season by contacting your FS Propane Salesmen​

Kyle Fecht serves the FS System as GROWMARK's Propane Supply Manager. He can be reached at kfecht@growmark.com​ ​​

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