Release date: October 4, 2017 | Next release date: October 12, 2017
Propane supply for Midwest markets appears normal as heating season begins
The first week of October marks the start of the winter heating season. Propane inventories in the Midwest, Petroleum Administration for Defense District (PADD) 2, have increased in the past few weeks to reach levels near the five-year average (normal). However, the process and timing of inventories reaching their normal levels this year was unusual, likely because of disruptions on the Gulf Coast related to Hurricane Harvey.
Midwest propane inventories at the beginning of the heating season are an important indicator of supply adequacy. Currently the National Oceanic and Atmospheric Administration (NOAA) forecasts winter weather in the Midwest to be 15% colder than last year, but in line with the five-year average. In the event of an unexpectedly colder-than-normal winter, inventories are needed to manage properly rapid changes in short-term demand, such as those that occurred during the winter of 2013-14.
Heading into the winter of 2013-14, Midwest propane inventories were 2.5 million barrels lower than was typical for that time of year based on a historical five-year average. After elevated agricultural demand for corn grain drying was followed by colder-than-normal weather, Midwest propane wholesale prices were nearly $5 per gallon (gal), compared with prices of less than $1/gal recently this year.
Midwest propane inventories are highly seasonal and typically build from April through September to prepare for higher demand in the winter. Although the pattern of propane inventory builds varies from season to season, inventories are typically between 25 and 28 million barrels by the start of October (Figure 1). Inventories this year have grown by 10.9 million barrels from the start of June to 26.4 million barrels for the week ending September 29, 2017, 3.6% lower than the previous 5-year average.
Midwest propane inventory levels have been below the five-year average level since the second week of January 2017, but inventories built 3.4 million barrels at the end of the build season, between the weeks ending August 25 and September 15, 2017 (Figure 2). This pattern differs from the past two years, when inventories started above the five-year average and then built steadily to the 25-to-28 million barrel range that is considered normal at the start of winter.
These late-season inventory builds may have been bolstered by a disruption to the normal flows of propane from Midwest (PADD 2) to Gulf Coast (PADD 3) because of Hurricane Harvey. Price spreads between the two main hydrocarbon gas liquids (HGL) hubs at Conway, Kansas (inside PADD 2) and Mont Belvieu, Texas (in PADD 3) are among the factors determining where propane supplies will go to be fractionated and put in storage. On the Gulf Coast, strong global demand for U.S. propane supplies and petrochemical demand have supported higher prices at Mont Belvieu compared with Conway. From April to September, the Mont Belvieu price for propane averaged $0.04/gal higher, ranging from $0.02/gal to $0.06/gal higher than the propane spot price at Conway during that time (Figure 3). This price difference resulted in propane supplies moving to the Gulf Coast rather than remaining in the Midwest.
In the aftermath of Hurricane Harvey, operation of fractionation and export facilities in the Gulf Coast were limited or forced to shut down. Propane supplies that had been destined for the Gulf Coast likely remained in the Midwest. This situation and the approach of winter likely contributed to PADD 2 propane inventories building in the weeks after Hurricane Harvey’s landfall.
The builds in Midwest propane inventories appear to have occurred throughout the supply chain and not only at the main hub of Conway. Sub-PADD level inventories published with EIA’s Heating Oil and Propane Price Update indicate inventories are near or above the five-year averages in Michigan, the Illinois-Indiana-Ohio region, and the Iowa-Minnesota-Wisconsin region. However, some volumes in inventory, particularly those in Conway, may need to be fractionated from a raw mix of HGL into consumer-grade propane before delivery.
Supply adequacy in the winter heating season can be measured in various ways. EIA’s U.S. Days of Supply for propane, and for all finished products, estimates U.S. days of supply by dividing the latest inventory level by the latest four-week average domestic product supplied, a proxy for consumption. The U.S. Days of Supply estimate provides a general measure of current inventories relative to current domestic consumption. For the week ending September 29, 2017, U.S. Days of Supply is 72 days. However, the calculation should not be taken literally, as it assumes that zero supply sources going forward and that all existing demand would only be met from existing inventory – a highly unlikely scenario.
U.S. average regular gasoline prices fall, diesel retail prices increase
The U.S. average regular gasoline retail price fell nearly 2 cents from the previous week to $2.57 per gallon on October 2, up 32 cents from the same time last year. The East Coast price fell five cents to $2.59 per gallon, the Gulf Coast price fell four cents to $2.38 per gallon, the West Coast price fell nearly three cents to $2.98 per gallon, and the Rocky Mountain price fell nearly two cents to $2.57 per gallon. The Midwest price increased nearly four cents to $2.40 per gallon.
The U.S. average diesel fuel price increased less than 1 cent, remaining at $2.79 per gallon on October 2, 40 cents higher than a year ago. The Rocky Mountain price increased three cents to $2.86 per gallon, and the West Coast, East Coast, and Midwest prices all increased nearly one cent to $3.11 per gallon, $2.82 per gallon, and $2.75 per gallon, respectively. The Gulf Coast price fell less than one cent, but remained at $2.62 per gallon.
Propane inventories fall
U.S. propane stocks decreased by 0.4 million barrels last week to 78.0 million barrels as of September 29, 2017, 26.0 million barrels (25.0%) lower than a year ago. Gulf Coast and Midwest inventories decreased by 0.7 and 0.1 million barrels, respectively, while East Coast and Rocky Mountain/West Coast inventories increased 0.3 and 0.1 million barrels, respectively. Propylene non-fuel-use inventories represented 4.2% of total propane inventories.
Residential heating fuel price survey begins this week
Beginning this week and continuing through the end of March 2018, prices for wholesale and residential heating oil and propane will be included in This Week in Petroleum and on EIA's Heating Oil and Propane Update webpage.
As of October 2, 2017, residential heating oil prices averaged nearly $2.67 per gallon, 37 cents per gallon higher than at the start of last heating season. The average wholesale heating oil price for the start of the 2017–18 heating season is $1.90 per gallon, 29 cents per gallon above the first week of the 2016–17 heating season.
Residential propane prices entered the 2017–18 heating season at an average of $2.23 per gallon, over 24 cents per gallon more than at the start of last winter’s heating season. Wholesale propane prices averaged $1.00 per gallon, 37 cents per gallon higher than the first collection week in October last year.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.
Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 10/02/17 | Week | Year | |
| Gasoline | 2.565 | -0.018 | 0.320 |
| Diesel | 2.792 | 0.004 | 0.403 |
| Heating Oil | 2.667 | NA | 0.366 |
| Propane | 2.228 | NA | 0.244 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 09/29/17 | Week | Year | |
| Crude oil | 51.67 | 1.01 | 3.43 |
| Gasoline | 1.607 | -0.061 | 0.120 |
| Heating oil | 1.812 | -0.004 | 0.284 |
| *Note: Crude oil price in dollars per barrel. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 09/29/17 | Week | Year | |
| Crude oil | 465.0 | -6.0 | -4.1 |
| Gasoline | 218.9 | 1.6 | -8.5 |
| Distillate | 135.4 | -2.6 | -25.3 |
| Propane | 78.004 | -0.396 | -25.996 |