U.S. propane inventories and prices are increasingly determined by the state of industrial demand in North East Asia and trade relations with China rather than weather and consumption at home.
Despite an exceptionally mild winter that depressed domestic consumption, exports depleted record stocks at the start of October to something much closer to normal by the end of March.
Propane and propylene inventories ended the winter on March 31 around 5 million barrels (+10% or +0.48 standard deviations) above the prior 10-year seasonal average.
The surplus was down from 13 million barrels (+15% or +1.18 standard deviations) at the start of winter on Oct. 1, according to weekly data published by the U.S. Energy Information Administration.
Inflation-adjusted spot prices have recovered to $35 per barrel so far in April 2024 from a recent low of $25 in June 2023.
Real prices at the Mont Belvieu trading hub are now close to the long-term average, in the 46th percentile for all months since 1990 up from just the 13th percentile in June 2023.
Excess inventories have been worked down even though the winter of 2023/24 was the warmest on record across North America.
RESCUED BY EXPORTS
Domestic production or propane and propylene climbed to a record 926 million barrels in 2023 from 506 million ten years ago, a compound annual growth rate of 6%.
Most of the extra propane has been recovered from gas wells drilled to satisfy burgeoning demand from power generators and LNG exporters.
But the volume of propane and propylene supplied to domestic customers has slipped by an average of 2% per year and fell to just 386 million barrels in 2023, the lowest for 30 years.
Fortunately for domestic producers, weak consumption at home has been more than offset by the continued boom in exports, especially to destinations in East Asia.
Exports have increased at a compound rate of 18% per year in the last decade and reached a record 582 million barrels in 2023.
Last year saw the largest-ever annual increase of 72 million barrels, with most of the extra sent to Japan (+31 million), China (+26 million), South Korea (+8 million) and Taiwan (+4 million).
As a result of export-led growth, overseas sales accounted for 63% of all U.S. production in 2023 up from 22% a decade earlier.
The outlook for domestic prices and stocks has come to depend critically on the level of demand from North East Asia.
John Kemp is a Reuters market analyst. The views expressed are his own. Follow his commentary on X
(Editing by David Evans)