According to the Energy Information Administration, Midwest propane markets appear to be more balanced than a year ago, avoiding weather and inventory issues similar to those of the 2013-2014 winter.
EIA said Friday that the record high prices of last winter – affected by severe weather and depleted inventories, as well as transportation issues – have eased this season.
So far, Midwest heating degree days this winter are 8.5% below the comparable year-ago period, EIA said, leaving Midwest propane markets well-supplied. Inventories in the region are 11.8 million barrels above the same time last year and 6.3 million barrels more than the five-year average as of January 30, EIA reported.
In addition, lower fuel prices are impacting propane markets. Propane is produced from both natural gas and crude oil, so the price of propane is related to the prices of both commodities.
Since 2012, propane prices have tracked between crude oil and natural gas prices on an energy-equivalent basis.
"Recent falling crude oil prices have narrowed the spread between crude oil and natural gas, and, combined with inventory builds in the Midwest and Gulf Coast, led to decreases in propane spot prices at both the Conway and Mont Belvieu price hubs," EIA said.
Despite the balancing of propane markets, retail and wholesale price spreads haven’t changed much, EIA said, explaining changes in infrastructure that both retail and wholesale providers are making.
These changes include the reversal of the Cochin pipeline, which altered delivery logistics. Networks now rely on more expensive rail and truck shipments, EIA said.
"Propane wholesalers and retailers have also made changes to secure supplies well in advance of winter and have increased the amount of propane they hold in inventory," EIA said.
The spread, which averaged $0.86 per gallon for the month of October, an increase of $0.22 per gallon from 2013, was $1.32 per gallon as of Feb. 2.
Source: Energy Information Administration