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J.R. Whalen: Heres Your Money Briefing for Thursday, July 8th. Im J.R. Whalen for The Wall Street Journal. Seems like you cant escape out-of-control prices. You fill up your car; youre paying through the nose. Eat at a restaurant; those prices are going through the roof. And how about staying at home and barbecuing dinner? Well, even there, the propane to fire up your grill is also burning through the cash in your pocket.
Ryan Dezember: Prices have basically never been this high this time of year. Now this time of year, of course, is when a lot of people are thinking about propane because theyre filling up their grill tanks and their outdoor heaters. Maybe their pool heaters use propane.
J.R. Whalen: So why are propane prices so high? And is there any relief in sight? WSJ reporter Ryan Dezember has been tracking the market. Well ask him about it after the break. Were in the midst of barbecue season, but this summer consumers are paying close to 20% more for propane than they did last year. So whats driving prices up? And is there any shot of things cooling off? For some answers, lets bring in our reporter, Ryan Dezember. Ryan, thanks for being with us.
Ryan Dezember: Thanks for having me.
J.R. Whalen: So, Ryan, why have propane prices risen so much this year?
Ryan Dezember: Propane, unlike oil, demand remained steady throughout the pandemic. It didnt plunge. The reason for that is around the world a lot of people use it for cooking at home. And of course, being at home, meant people were cooking just as much as ever. They were also heating their homes a lot more because they werent going to work, for those that use propane as a heating fuel. The other big thing that happened is in recent years, the abundance of propane that has hit the market because of the shale boom in the US has prompted chemical makers in Asia to build factories that specifically use propane to make plastics. A lot of older facilities can toggle between different feedstocks, depending on price. A lot of these new facilities only use propane, and theyre such big machines in factories, they didnt shut down during the pandemic because theyre really hard to get started. So demand really remained steady around the world while other types of petroleum demand declined.
J.R. Whalen: So whos affected by these higher prices? Why is the price increase so significant?
Ryan Dezember: Propane is used by millions of American households, usually rural households off the natural gas grid, and they use it for heat. Theyre going to be the most affected because theyre coming out of household budgets. If your fuel bill is twice, it might not translate to twice in retail prices, but the commodity, the wholesale price, is twice what it used to be this time of year or what it has been in recent years. So you have households. You also have farmers in the Midwest who use a lot of propane to dry crops in the autumn. And you have all sorts of manufacturers who rely on propane or its derivatives in plastics. Propane is also a major fuel used in like to power forklifts and things around ports and warehouses. So a big cross-section of households and businesses rely on propane.
J.R. Whalen: We dont normally see prices this high for propane at this time of the year. Right?
Ryan Dezember: No, no. In fact, this is more akin to what we would see in autumn and winter when demand is much higher. In fact, the federal government doesnt even track prices this time of year because demand is pretty slow. People arent heating homes and businesses and such. As far as we can tell, prices have basically never been this high this time of year. Now, this time of year, of course, is when a lot of people are thinking about propane because theyre filling up their grill tanks and their outdoor heaters. Maybe their pool heaters use propane. But most of the demand comes in winter, and thats usually when we see prices this high.
J.R. Whalen: We just had the July 4th holiday. A lot of people probably filled up their propane cylinders to light up the grill. Did that rush of activity have any effect on pushing up prices?
Ryan Dezember: No, thats a lot of people buying, but in very small quantities relative to the big tanks that you would fill at your house for heat or what a chemical factory would buy. Now retail problems are generally in the availability and the cost of the cylinders. We saw a lot of businesses that didnt have propane or didnt have tanks this year. Thats sort of a function of the pandemic when a lot of people were stocking up, sort of hoarding stuff for their outside cooking, for the patio heaters. A lot of restaurants added outdoor seating and tried to stay open as long as they could in the winter. So there was a lot of pinch point in the canisters, the cylinders that are used to bottle the gas and deliver it in small quantities.
J.R. Whalen: Okay. So lets talk about how consumers can be smarter about dealing with these higher prices. Is there a way for them to plan out or strategize their propane purchases to ease the pressure on their wallet?
Ryan Dezember: Thats tricky. People may want to fill up their propane tanks now if they think that prices are going to rise, which a lot of banks on Wall Street, a lot of analysts think will happen. And the reason is, is because despite the recent rise in oil and natural gas prices, producers around the world, and particularly in the US, are holding back on drilling. They have been trained by their investors to be focused on profitability and not just volume. They were really stung last year by the collapse in oil prices, and drillers have been really shy about drilling. Of course, propane is a by-product of refining crude oil, and also is a by-product of natural gas drilling. Weve seen big reductions in the amount of activity, and thats leaving supplies a little short while demand remained steady and, in fact, is booming around the world in the export market.
J.R. Whalen: So any relief in the long-term outlook for propane prices that youre aware of?
Ryan Dezember: Well, analysts in banks on Wall Street think that what will have to happen to ensure that there arent price spikes this winter and shortages in certain areas is that the price will keep moving higher this summer to a point that it discourages overseas buyers and prompts them to cancel some orders. That would then leave enough propane in the domestic stocks, which are really low for this time of year, to replenish and have enough to go around this winter.
J.R. Whalen: All right. Thats WSJ reporter, Ryan Dezember. Ryan, thanks for coming on the show.
Ryan Dezember: Thanks for having me.
J.R. Whalen: And thats Your Money Briefing. Im J.R. Whalen for The Wall Street Journal.
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