Last week, the Energy Information Administration (EIA) reported U.S. crude inventory fell 2.976 million barrels. Like the last couple of weeks, the draw on crude inventory surprised market analysts. Before EIA released the data, a survey of analysts showed an average expectation for a 2.560-million-barrel build in crude inventory. The high estimate was for a 4.3-million-barrel build. Even the most bearish view on inventory only expected a 700,000-barrel decline in inventory. The draw kept crude inventory in a steady decline.
With this latest draw, U.S. crude inventory dropped below 500 million barrels for the first time since January.
All year, crude inventory has been setting five-year highs for each passing week. That trend of new highs continues, but the inventory overhang is on a fairly steady downtrend. That is normally the case from about April to the middle of September during the peak of the U.S. driving season.
What makes the drawdowns in inventory over the last couple of weeks interesting is that they are occurring during a time that typically sees a little upswing in inventory. After the driving season ends and going into November, crude inventory usually builds as refineries undergo seasonal maintenance, reducing overall crude consumption.
Typically, propane prices fall with crude before seasonal demand fully kicks in for the winter. However, so far this year, the typical build in crude inventory starting in late September has not occurred. Tropical activity seemed to break the typical crude imports into the United States, and they haven’t gotten back on track. Now, traders say strong demand in Asia and higher shipping rates may keep crude imports subdued more than normal this fall.
While the seasonal price trend is for prices to be on the soft side between October and late November, this year could be different. In addition to the changes in crude imports, crude markets are also dealing with the Organization of the Petroleum Exporting Countries’ production agreement, which could also help keep crude prices moving up.
So, if light imports are causing draws in U.S. crude inventory to continue during the period of normal inventory builds, there could be a two-pronged support for crude prices. If crude prices are unseasonably strong over the next month to six weeks and propane fundamentals become more supportive, there could be continued upward pressure on propane prices during a time that they are, more often than not, retreating.