Propane inventory continues to fall at above-average pace

In last week’s Trader’s Corner, we looked at where U.S. propane inventory stood at the end of 2016, noting the potential for it to finish this winter well below the levels of the previous two winters.

The inventory draws in January and for the week ending Jan. 13 – the last week reported – make it almost a certainty inventory will end this winter at its lowest point in three years.

For the week ending Jan. 13, the U.S. Energy Information Administration (EIA) reported U.S. propane inventory down 7.414 million barrels. The draw left inventory at 72.245 million barrels. That level is 19.7 percent, or 17.698 million barrels, below the same point last year. In addition to being lower than the 89.943 million barrels of inventory at this point in 2016, it is also lower than the 74.853 million barrels of inventory at this point in 2015.

The 7.414-million-barrel inventory draw was the result of strong domestic demand and exports, as well as a drop in propane production. This winter has been marked by high exports, and this report was no different. EIA reported exports at 998,000 barrels per day (bpd), down 45,000 bpd from the previous week, but well up from the 711,000 bpd from the same week last year.

Domestic demand surged to 1.915 million bpd, a gain of 324,000 bpd over the previous week, and 533,000 bpd higher than the same week last year.

EIA said propane production was 1.629 million bpd for the week ending Jan. 13, down 139,000 bpd from the previous week. The drop in production put it 55,000 bpd less than the same week last year. Propane production below the previous year is very rare. We believe it possible that harsh winter weather conditions limited natural gas production and propane supplies. If so, we expect production to improve next week.

From this point in 2016 until the last inventory draw in early March, U.S. propane inventory dropped 27.717 million barrels to end the drawdown at 62.226 million barrels. That same draw this year would have inventory at 44.548 million barrels, which would be very close to the five-year average.

However, the current rate of inventory decline would give every reason to believe the drawdown for the rest of winter could exceed that of last year. From the end of the inventory build in 2015 to this point in 2016, inventory declined 16.259 million barrels. From the end of the inventory build in 2016 to this point in 2017, the inventory draw has been 30.423 million barrels. It is possible this winter could end with inventory below 40 million barrels.

Slower growth in propane production, higher rates of exports and a stronger winter have combined to change the fundamental landscape for propane. While we would expect good inventory builds this summer, it is highly probable that build will begin from a much lower level, which could mean a firmer pricing environment in the spring.

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