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MARKET INSIGHTS FROM

LAST WEEK'S TOPIC: CRUDE PRICES PART IV

Domestic propane demand is recovering

If you are a regular reader of Trader’s Corner, you know we have written about the extremely low domestic demand for propane this year ad nauseam. As analysts, we look for things that are different from what we have seen historically or seem unusual. We want to know why and how those anomalies impact the price of propane. We know the market generally corrects toward norms unless there has been a significant change such as the addition of more export or production capacity.

As we plotted, propane demand through the first half of the year was exceptionally low. In fact, at several points during the year, record low domestic demand was reported. We wrote about one such event in May when propane demand dropped to 570,000 barrels per day (bpd). Demand dropped to just 333,000 bpd at the end of June, which was an incredible 783,000 bpd less than the same week in 2022.

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Many people point to the mild winter as the reason for low demand. It certainly was an overall mild winter, and it was below normal almost everywhere. Yet, heating degree-days overall from July 1, 2022, through June 30, 2023, were higher than during the same time frame last year.

As Chart 1 shows, the cumulative deviation from last year was a gain of 134 heating degree-days, up 3 percent for the year.

Petrochemical demand through July has been lower this year by 38,000 bpd than the same period last year, but that does not come close to accounting for the extremely low overall domestic demand drop.

In trying to explain the demand drop, we theorized that inflation had caused consumers to hold less propane in their tanks. In one Trader’s Corner, we showed storage at the primary, secondary and tertiary (consumer) level. The amount of consumer level storage is so high it would only take a small change in levels to have a major impact on propane inventory at the primary level (trading hubs).

What has us revisiting this subject is what we are seeing in domestic demand now.

Chart 3 shows U.S. domestic propane demand. As you can see, the weekly changes in demand are quite high. Keep reading...

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Cost Management Solutions LLC (CMS) is a firm dedicated to the unbiased analysis of the energy markets for the propane industry.

Mark Rachal, Director of Research and Publications at CMS, regularly provides insightful looks into various facets of the marketplace.