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Propane Prices Soar Ahead Of 4th Of July Grillfest

Tyler Durden's Photo
by Tyler Durden
Saturday, Jul 03, 2021 - 10:20 AM

Whether you're in the mood for hotdogs, burgers, grilled chicken, or corn on the cob this Fourth of July, the cost of grilling this year is skyrocketing due to soaring propane prices, according to WSJ

Prices at Mont Belvieu, Texas, a major hub for NGL fractionation and trading, located on the U.S. Gulf Coast outside of Houston, were around 97 cents per gallon at the time of writing. These prices have nearly tripled since the virus pandemic lows.

The forward curve of Mont Belvieu propane futures is in slight backwardation through the end of the year into January, then the curve slopes more downward into March when winter subsides. 

Some factors that have resulted in increasingly propane demand are health officials' policies during the pandemic that forced restaurant patrons to eat outside last fall. Restaurant owners scrambled to purchase portable propane heaters to keep guests warm. Then February's deep freeze increased demand even further, leading to lower inventories ahead of summer. 

Further, there's been a significant drawdown on domestic inventories, which are down 17% versus a year ago and approximately 15% below the five-year average.

JPMorgan analysts told clients in a commodity note this week that prices might have to climb higher to discourage foreign buyers. The analysts wrote, "extremely tight balance, particularly with increased domestic demand from weather, is likely to elicit some reduction in U.S. propane exports through price." 

Raymond James' commodity desk estimates prices could remain above $1 for the second half of the year. "As these dynamics continue, the U.S. market would project to hit dangerously low propane inventories," they said. 

Outbound cargoes for propane have been steadily increasing over the last decade. Energy Information Administration data show exports rose 13% last year. 

Compound rising propane costs with soaring food costs, such as cereals, oilseeds, dairy products, meat, and sugar, and this Fourth of July BBQ could be a whole lot more expensive than ever before. 

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