The reasons that are driving the propane gas market towards total Armageddon in the US

The energy market is experiencing turbulent times in much of the world. The investment stoppage during the covid crisis and the subsequent economic recovery (rapid and powerful) has caught the producers of many raw materials that are now unable to meet demand. A good example today is the market for propane in the US, a very important energy-generating raw material that could become scarce this winter, creating an unprecedented situation in the world’s leading economy.

Prices through the roof and supplies in the ground. The market for propane seems to be heading towards “Armageddon” that it will touch the deepest zone during the winter, according to the research firm IHS Markit, in statements collected by Bloomberg.

The US Energy Agency (EIA) has released several notes in which it talks about a very tight energy market in general. “In our short-term energy outlook for October, we expect prices to rise and, furthermore, we predict a slightly colder winter compared to last year, which will help US households spend more on energy this winter (October -March) compared to last winter “.

The price of Brent crude oil (the price of crude oil most relevant to determine the prices of petroleum products also in the US) is close to 85 dollars per barrel, almost 60% higher than last winter’s average, which is contributing to rising propane prices and retail heating oil prices.

In addition, “Propane inventories have been increasing at slower rates than historical averages for this time of year. We expect the US retail price of propane to average $ 3.10 per gallon (gal) this winter (49% higher than last winter) “, they assure from the EIA.

Very low propane inventories

Stocks of this fuel, which is key for heating and also functions as a manufacturing raw material in the world’s largest economy, will begin to decline rapidly as the cold begins to set in in the coming weeks, according to IHS analyst Edgar Ang. , during a webcast presentation on Tuesday.

Futures prices for the first quarter of 2022 are well above futures for subsequent months, which “may indicate that the traders are preparing for armageddon of the propane market “during the harshest winter months. Some regions may face an absolute shortage before the end of winter.

US propane prices have nearly doubled this year and are on track to hit the strongest rebound since 2009. North American propane hit a 7 1/2 year high after surpassing $ 1.50 a gallon earlier this month. , according to DTN Energy.

IHS analysts expect a colder-than-normal winter, which will put even more pressure on propane supplies, analyst Veeral Mehta says.

The EIA explained in early October in another report focused on propane that “the market has adjusted due to increased exports, and wholesale propane prices in the US have risen in line with wholesale propane prices. in foreign markets “.

A perfect storm on the market. More demand and less supply create a powerful shock: “The general imbalance between the growing global demand for propane and the reduction in global production has contributed to the higher wholesale prices of propane in Northwest Europe and East Asia. that doubled in the last year “, they explain from the EIA.

However, according to IHS experts, the worst could be yet to come. Europe and East Asia are net importers of propane, which is used in both markets for space heating and as a petrochemical feedstock. These regions will struggle to attract US propane to offset historically low inventories. Markets could become extremely tense, leading to the ‘Armageddon’ that IHS analysts speak of.