Crude oil forecast and effect on propane costs

Crude oil prices play a significant role in influencing propane prices. The fluctuation of crude oil prices, which are influenced by various global factors, ultimately determines the pricing environment for propane. While the supply and demand dynamics of propane also play a role in pricing, the overarching impact of crude oil cannot be overstated.

To visualize this relationship, one can think of crude oil as a fighter jet and propane as a rocket fixed under its wing. The rocket, representing propane, follows the trajectory of the jet, symbolizing crude oil. Occasionally, propane fundamentals, such as changes in supply or demand, can cause the rocket to launch independently. However, most of the time, propane prices are closely linked to crude oil prices.

In assessing the outlook for propane prices, one must first evaluate the state of crude oil prices, which involves considerations beyond just fundamental analysis. Recent reports from the Energy Information Administration indicate a significant build in crude oil inventories, which was much needed after the low inventory levels observed in the past year. Despite this, crude oil prices have been declining.

Predicting crude oil prices is a complex task influenced by various geopolitical, economic, and market manipulation factors. For instance, changes in crude oil prices over the past year were driven by macroeconomic conditions, geopolitical events, and global demand patterns. Market analysts have provided forecasts for crude oil prices through 2029, with the average forecast for 2025 standing at $70.40 per barrel.

In 2024, Mont Belvieu propane averaged 43 percent of WTI crude, with a current valuation at 54 percent. This implies that propane is currently overvalued relative to its historical average but remains consistent with previous year valuations. Propane supply in the United States is expected to remain stable in 2025, suggesting that propane prices will likely align with their relative valuation to crude oil prices in 2024.

Given these factors, it is projected that propane may average around 72 cents in 2025, with a need for lower prices in the summer to meet this average. The expectation is for propane prices to retreat after the winter season, considering the anticipated decrease in crude oil prices compared to the previous year. Political and economic factors may introduce uncertainties, but having a baseline analysis provides a starting point for understanding price trends.

The dynamic interplay between crude oil and propane prices requires ongoing monitoring of market developments to assess if trends align with expectations. While the future remains uncertain, a nuanced understanding of the relationship between crude oil and propane prices can inform decision-making in the propane industry.