Propane supply glut pushes down prices to 13-year low

(Wall Street Journal; June 25) - Propane is tanking. The U.S. benchmark price for the gaseous byproduct of oil production has plunged 18 percent this year. Driving the selloff is a supply glut that some analysts said could hold down prices for years. Production of propane has surged to an all-time high as companies that tap oil and gas from shale formations have sought to boost their revenue by targeting fields with big reserves of propane and similar fuels used to heat homes, make chemicals and fire up grills.

This month, propane prices tumbled to a 13-year low. Prices in Western Canada, a key producing region, turned negative in May for the first time on record, meaning that producers paid buyers to take propane. Producers “have reached the limits of demand … in the North American market,” saidMatthew Adams,portfolio manager for the Franklin Natural Resources Fund. The drop in propane prices is the latest example of how the years-long boom in U.S. energy output continues to upend markets.

The nation’s propane stockpiles are rising so fast that some traders said there is a chance that available storage could run out before winter, when inventories usually decline. Supplies of propane and propylene, a related product, are at their highest level for this time of year since the 1970s.The decline in wholesale prices is already trickling down to consumers, who are starting to see lower prices. “It’s a great year for the consumer … and hopefully a good two or three,” said a Pennsylvania distributor.