Slide 6 of 28
Notes:
- This chart shows propane price with the price of two competing fuels -- No. 2 heating oil and ethane, which is used in the petrochemical sector to produce ethylene. Crude oil price is also shown, which is the major driver behind No. 2 heating oil prices.
- Propane prices weakened considerably in 1998, as one might expect from the high stock situation. Prices bottomed out in December at 21 cents per gallon, a level not seen since August, 1989. Crude oil, like propane, also bottomed in December 1998, with WTI at about $11 per barrel or 27 cents per gallon. The similar timing is not coincidental.
- Propane price moves with the heating fuels in the winter months, and competes with both crude-based and natural gas-based fuels in the petrochemical market during the summer. Thus propane tends to follow the petroleum product markets, although propane price movements can be more exaggerated. This is why we saw both propane and crude oil prices bottoming in December.
- Through 1998, No. 2, propane and ethane all squeezed closer together, which worked to the disadvantage of ethane. Since 1989, the difference between propane and ethane wandered mostly between 8 and 18 cents per gallon. But by the end of 1998, it moved down to about 5 cents per gallon, and more recently with the price upturn, has been about 3 cents per gallon as ethane has risen more rapidly than propane.
- With petrochemical demand increasing in1998, what happened to non-petrochemical demand?
