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Propane Pricing Series Part 2 Current Trend

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Second only to maybe Thanksgiving, propane prices are on everyone’s mind this time of year. As promised, this is part two of the three-part pricing series. Here’s a quick reminder on what has been published in this series and what you can expect in the future:

Part 1: Pricing Factors (Posted 10/30) — In part 1, we looked at a number of factors which influence the price of propane and what affect those factors have had on prices in past years.

Part 2: Current Trend — This second part focuses on what’s currently happening in the market and how that’s impacting prices. We’re taking a look at current production and the climate outlook for the 2015-2016 heating season; when prices and demand are most likely to fluctuate.

Part 3: Future/Long-Term Trend —This third and final section in the series will highlight pricing predictions for the next couple of years. We’ll also take a look at the global economic environment impacting propane and energy in general and forecasted energy consumption.

Production and Inventories

It is mid-November now and that means most propane inventories have been built up and are now preparing to enter the depletion period through early 2016.

As mentioned in part 1 of this series, the United States is currently producing more propane than it ever has before. Propane production in the United States increased from 1.62 MMbpd (million barrels per day) during the week ending August 14 to 1.63 MMbpd in the week ending August 21. Compared to the same week in 2014, propane production is 4.3% higher in 2015. Overall, propane production is up 28% in 2015 compared to 2014 (Jan through Aug). Inventories in the Midwest, Gulf Coast and West Coast increased this year compared to the same time last year but inventories on the East Coast remained predominantly flat.

Stock of propane (in million barrels) by region.
As of August, demand for propane has decreased by 6.3% compared to the same month last year. A surplus of inventory coupled with low demand in 2015 (so far) should keep prices steady and may even drive them down later this winter and into the 2016 winter heating season.

U.S. propane demand as a 4 week average 2013-14 compared to 2014-15.

Winter Outlook: 2015-2016 Heating Season

Most of the country has been adjusting to a relatively warm fall season. Whether this is a good or bad thing depends on the type of weather you prefer. For the skiers and down-jacket lovers, this isn’t a very good sign while those who love shorts and flip flops couldn’t have asked for anything more.

Whatever your opinion of this mild autumn, it surely is poised to have an impact on propane demand which in turn will affect its price. The National Oceanic and Atmospheric Administration (NOAA) predicts a warmer than normal winter for most of the country. Some states in the Southern United States however may see temperatures slightly below normal with states in the lower Midwest to South East have an equal chance of warmer than average winter temperatures or cooler than average.

Probability of cooler or warmer than normal temperatures. Alaska and Hawaii not shown but are expected by the NOAA to have warmer than normal temperatures this winter. To see full map (including Alaska and Hawaii) click here and click on map to show full version.

With larger than normal inventories and a warmer than normal winter expected, propane prices aren’t expected to spike this winter. Prices spiked slightly in the 2014-2015 winter season after the northeast and mid-west had a longer and wetter than expected winter. Prices for this upcoming heating season however should stay steady.

Stay tuned for part 3 of this pricing series where we’ll look at pricing predictions for the next couple of years. We’ll also highlight the global economic environment impacting propane and energy in general and forecasted energy consumption in the years to come.

Sources: EIA, Yahoo Finance, NOAA