This graph shows that propane was not alone in experiencing excess supply in 1998 and
extraordinary stock builds. Note that the graph shows average stock levels during the
year, not end-of-year stocks.
Crude cycle:
In 1996, the crude market tightened after a cold winter drew down stocks. Stocks dropped
to very low levels as buyers kept expecting new supply to bring prices down, and they thus
did not rebuild inventories.
But the high-price/low-stock situation soon began to reverse. With the return of Iraqi
supply to the market in 1997, followed by a loss of demand from the Asian economic crisis
and a warm winter further reducing demand, supply exceeded demand, stocks built, and
prices plummeted. Only the sizeable production cutbacks recently announced by OPEC turned
prices around.
Although the Asian economic crisis affected crude oil demand significantly, it seemed to
have little effect on propane demand. In Asia, propane is used mainly for residential
purposes, and this demand did not change much. Like Europe, Asian petrochemical plants
were built to use naphtha, so the downturn in the petrochemicals business did not have
much impact on Asian propane demand.
