Oil sluggish after inventory build, Chinese GDP

What are we waiting for?

I know we talk a lot about shale gas but what about shale propane? The EIA reports in their “Energy Today”  note that propane inventories (including propylene) in the United States finished September 2012 at a record high level of 75.6 million barrels, while the average weekly spot price for propane sold from storage facilities in Mont Belvieu, Texas was at its lowest level since the third quarter of 2009. During the third quarter of 2012, U.S. propane inventories rose by almost 22%.

While seasonal increases are not unusual because of reduced demand resulting from warmer weather, the steady climb in inventory levels this year is more likely the result of increased production. Propane supply in the United States (the weekly refiner, blender, and gas plant net production of propane - including propylene - plus additional net inventories, minus net exports) averaged 1.24 million barrels per day for the third quarter, 13.4% more than third-quarter average demand. Third-quarter average weekly supply was 5.3% above second-quarter levels, despite an 8.0% quarter-on-quarter drop in the average weekly Mont Belvieu spot price. From January 2012 through July 2012, the United States exported an average of 0.16 million barrels per day, while importing an average of 0.13 million barrels per day. The United States has not been a net exporter of propane and propylene since the EIA and U.S. Bureau of the Census trade data series began in 1973.

The EIA says that propane can be separated from natural gas at natural gas processing plants, or from crude oil at refineries. The increased levels of propane production and supply and the resultant increase in inventory appears to be less in response to propane prices and more as a result of increased natural gas production. Propane is a byproduct of shale gas production at fields containing wet gas—or, a high volume of natural gas liquids (NGL)—such as the Eagle Ford play in south Texas, where operators target a combination of crude oil, condensate and NGL. The supply and inventory increases for propane are most likely driven by producers responding to lower natural gas prices by increasingly focusing their production on wet fields, which are more profitable right now than dry gas production. The Gulf Coast region (PADD 3) accounted for 60%, or 7.4 million barrels, of the 12.4 million barrel rise in third-quarter propane inventories, placing downward pressure on Mont Belvieu spot prices.

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About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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