The premium for propane at the US Midcontinent trading hub of Conway over the Mont Belvieu Non-LST price dropped 2.9 cents/gal this week, with sources saying the storage capacity of natural gas liquids producers in the Midcontinent may be reaching its upper limits.
On Thursday, the premium for Conway propane was heard at 35 points over Thursday's Platts Mont Belvieu Non-LST assessment of $1.0215/gal.
The premium for Conway propane has averaged 2.75 cents/gal above Mont Belvieu so far in August and averaged 2.4 cents in July.
"Anyone who brings in y-grade to Conway fractionation facilities -- big players like Oneok, DCP Midstream, Phillips 66, Enterprise Products Partners, BP -- may not have enough storage," said a Midwest propane trader.
"Potential buyers like retailers and wholesalers who have storage capacity available want a lower price. So some have probably been holding out on filling up in the hope that prices will drop," the source said.
In the 2013-4 winter, low inventories plus higher demand for crop drying and heating propane saw prices jump in the Midwest.
The Conway price briefly topped $4/gal in January as bitter cold swept the region. At that time, the Mont Belvieu price was trading steadily around $1.50/gal.
On Wednesday, US Energy Information Administration data showed Midwest stocks in the week that ended August 15 rose 1.05 million barrels to 24.5 million barrels.
The lift in stocks reported in the most recent week was 71% higher than the five-year average, but the stocks total is still 4.5% below the five-year average for the comparable week.
According to Bentek Energy, a unit of Platts, Midwest production increased about 20% from an average of 175,000 b/d between April 1 and August 31, 2013, to 211,000 b/d between April 1 and August 20, 2014.
Since June, Conway propane has consistently traded at a premium to Mont Belvieu, after the month of June showed very weak inventory builds and concerns rose about another season of high propane demand due to US Department of Agriculture forecasts of another bumper corn harvest.
In its most recent forecast, USDA revised its 2014 production prognostication above 14 billion bushels, the largest on record, raising its output prediction by 172 million bushels compared with its July forecast.
Current data indicate a gradual increase in Midcontinent stocks, but if the USDA corn production forecast bears fruit then analysts believe the region may face another propane price shock due to strong demand during crop drying season.
