Stocks are high around the world and US production is still growing strongly, and thus prices may have to fall to curtail production growth.
NEW YORK(Commodity Online): The recent decline in propane prices is likely to pause during the next couple of months as US petchems respond to lower prices by switching feedstock from ethane to propane, according to the latest report by BofA Merrill Lynch.
"Petchems around the world will soon have exhausted their capacity to soak up more propane, which means prices will fall even further in 2015,"the report said.
US propane prices have fallen 48% in the last four months to 57c/gal, due to (1)humongous US production growth flooding the US and international markets alike, and (2) a 45% drop in crude oil prices which pulled down virtually all product prices.
Stocks are high around the world and US production is still growing strongly, and thus prices may have to fall to curtail production growth. Hence the next level of downside price support for US propane is the energy equivalent price of natural gas- the level at which US producers will start to curtail production by rejecting propane into the dry natural gas stream, just as they have been doing with ethane for years.
That propane price level is currently $0.36/gal (with natural gas at $3.70/MMBtu), 21 cents a gal below current propane prices. "A key risk to our bearish view in propane prices in 2015 is a rally in crude oil, and we do expect crude prices to rebound in 2015 at which point propane prices could recover again."
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