After a solid month of growth, propane prices retreated at both Mont Belvieu and Conway. It was not a matter of if, but when, this would occur as the supply-demand dynamics cannot support a sustained price rally for propane.

Despite the gloomy outlook there could be some bright spots on the horizon as Jefferies Group LLC stated in an October 8 research note that inventory levels may be closer to historical norms than originally forecast.

“While noting that U.S. propane production is near all-time highs and U.S. inventories are bloated on an absolute basis, if translated into [12 months] of demand, propane stocks appear more normal,” the investment firm said in the report. It further noted that propane storage was 51% above its seasonal five-year average in July, but if this was divided by the trailing 12-month average daily demand and exports, it was only 11 days above the five-year seasonal average.

End-user demand for propane has arrived earlier this year due to the attractive prices available ahead of demand season, which has resulted in earlier withdrawals from storage. Jefferies stated these early withdrawals combined with increased LPG export capacity and PDH additions in 2016 may bring propane inventory levels back to normal levels sooner than later.

Another positive to the increase in propane supplies is that much of this new growth is coming out of the Northeast and Midwest, which is close to domestic demand centers and will make for easier transportation to most of these markets.

In an October 5 research note, RBN Energy LLC stated that additional pipelines, rail facilities and export terminals are also increasing the flexibility and interconnection of the marketplace. “Increasingly, volumes from new propane producing regions are transported by rail…[which] can be less ratable than pipeline deliveries. [This] new infrastructure will enable regional propane shortfalls to be mitigated by rail deliveries, interregional flows and temporary cuts in exports,” the report said.

Ethane prices remained flat at Mont Belvieu at 20 cents per gallon (/gal) while gaining 2% at Conway to 17 cents/gal. Inventory levels have been decreasing as widespread rejection is helping reduce stock, which should help support price gains. Jefferies anticipates a sizable increase in ethane exports from the U.S. to 270,000 barrels per day (bbl/d) along with strong utilization of steam cracker capacity. However, ethane will still be heavily rejected at 600,000 bbl/d.

“We do not believe the aforementioned factors will be enough to justify standalone value for ethane given the ongoing growth in fractionation and de-ethanization additions; hence, our expectations for ethane to track a 90-100% relationship to 2015-18 NYMEX natural gas prices,” Jefferies said in its report.

Heavy NGL prices improved along with West Texas Intermediate crude prices, which rose to its highest level in more than a month. The outlook for crude is still mixed, but there are growing sentiments that fundamentals are improving even as the short-term looks hazy. It is likely that a significant build in inventory will take place in the coming weeks as refiners undergo routine maintenance, but the longer-term outlook indicates production decreasing while demand is expected to improve faster than previously expected. Recent reports indicate that China’s demand for oil could be 2% greater than anticipated by most forecasts.

Overall the theoretical NGL bbl price improved at both hubs as the Mont Belvieu price rose 2% to $20.34/bbl with a 6% increase in margin to $11.39/bbl. The Conway price improved 1% to $19.75/bbl with a 4% increase in margin to $11.20/bbl.

The most profitable NGL to make at both hubs was C5+ at 72 cents/gal at Conway and 70 cents/gal at Mont Belvieu. This was followed, in order, by isobutane at 48 cents/gal at Conway and 40 cents/gal at Mont Belvieu; butane at 37 cents/gal at Conway and 39 cents/gal at Mont Belvieu; propane at 23 cents/gal at Conway and 25 cents/gal at Mont Belvieu; and ethane at 1 cent/gal at Conway and 4 cents/gal at Mont Belvieu.

There was another large storage injection the week of October 2, the most recent information available from the U.S. Energy Information Administration. The agency reported storage increased by 95 billion cubic feet to 3.633 trillion cubic feet (Tcf) from 3.538 Tcf the previous week. This was 14% higher than the 3.19 Tcf figure posted last year at the same time and 5% greater than the five-year average of 3.748 Tcf.

Storage builds could remain high the week of October 14 as the National Weather Service is forecasting warmer-than-normal temperatures throughout the country, which will further delay the start of heating season.

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