Will Heating Oil and Jet Fuel Follow Propane's Positive Trend?
In its weekly petroleum status report released on December 2, 2015, the EIA (U.S. Energy Information Administration) stated that US propane inventories fell by 2.1 MMbbls (million barrels) for the week ending November 27.
The total propane inventories were 104.10 MMbbls for the week ending November 27, 2015. The current inventory levels were well above the upper limit of the five-year average range. These levels are 24.7 MMbbls greater or 31.1% higher than they were in the same period last year.
US residential propane demand was 1.3 MMbpd (million barrels per day) for the week ending November 27, 2015. This was 0.44 MMbpd more than the demand for the week ending November 20, 2015. The current propane demand is 0.06 MMbpd or 4.5% higher than the propane demand in the same period last year.
US residential propane prices were $1.95 per gallon on November 30. The prices are $0.01 per gallon higher than the prices on November 23. On the other hand, the current prices were $0.44 per gallon or 18.6% lower than in the same period last year.
Higher propane demand
The current propane demand is more than the same period last year. This is bullish for propane prices. The propane demand is 4.5% higher than the demand last year even though the current prices are 18% lower than last year. However, propane prices recovered slightly last week due to increased demand. The long-term lower crude oil prices and high crack spreads pressured refiners to produce more. This led to the oversupply of refined products like propane.
Also, the less-than-expected demand for propane—due to the less-than-expected heating degree days and reduced usage of propane for corn drying this year—created massive inventory builds. This was negative for propane prices. It resulted in lower revenue for propane distributors and MLPs like AmeriGas Partners (APU), Suburban Propane Partners (SPH), Ferrellgas Partners (FGP), and Star Gas Partners (SGU).
Suburban Propane Partners accounts for ~3% of the Yorkville High-Income MLP ETF (YMLP). Ferrellgas Partners accounts for ~2% of the Global X SuperDividend US ETF (DIV). AmeriGas Partners accounts for ~0.06% of the PowerShares Dividend Achievers ETF (PFM)
In the next part of this series, we’ll discuss more heating oil updates.
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