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Click here for a free, 10-day trial of The Propane Price Insider!
Call Cost Management Solutions today at 888-441-3338 for more information about how Client Services can enhance your business or drop us an email at info@propanecost.com.
Trader's Corner
This week’s Trader’s Corner looks at current propane inventory and what needs to happen to be average by the beginning of winter.
This week, we created charts we will share with our daily readers each Thursday to help them monitor propane inventory. As we have often discussed, the expectation is that U.S. propane production this summer will be enough to meet export and petrochemical demand, as well as replenish inventory.
However, each week that inventory does not build at an average or an above-average pace adds a little doubt to that assumption and provides price support for propane. This past week, U.S. propane inventory was up 1.2 million barrels, a good build that was slightly above average for week 16 of the year. But it was below the 1.6-million-barrel build needed each week to hit the 67.5 million barrel average inventory position by the first week of October.
Last week’s inventory build was not balanced, with a below-average build on the Gulf Coast and an above-average build in the Midwest. Despite Midwest inventory at five-year lows, the report caused Conway propane prices to fall, whereas Mont Belvieu prices held up better.
In the charts below, we will show in blue the current inventory position and show in red the amount that inventory needs to build to reach the average first-week-of-October inventory position.
Total U.S. propane inventory currently stands at 29.5 million barrels or 44 percent of the 67.5-million-barrel target. Inventory needs to build 38 million barrels or 1.6 million barrels per week over the next 24 weeks. It is important to know the five-year average weekly inventory change is 1.3 million barrels per week. Since we are counting on above-average builds every week, any week below 1.6 million barrels will simply require even more exceptionally high inventory builds.
With propane trading at just 45 percent of a barrel of West Texas Intermediate (WTI) crude, at this point it is selling at a relatively cheap price given the challenging inventory levels. Again, the only reason for that to be the case is because propane sellers believe propane production is going to allow inventories to build at a higher pace than has historically happened.
This kind of situation makes the Trader’s Corner from last week very meaningful. Last week, we discussed focusing on price risk and managing our supply according to risks rather than simply making a bet and sticking with it. If we are worried about the current inventory position and want to take a supply position to manage that risk, we don’t necessarily have to live with the decision through winter if supply conditions change. We can always close positions down if we deem it prudent, meaning we think upside price risk is less and downside price risk is more.
We will add two more charts below to show how inventories are positioned on the Gulf Coast and the Midwest.
Gulf Coast inventory is at 16.4 million barrels, 51 percent of its 32.4-million-barrel target. Inventory needs to build 668,000 barrels per week to hit the target. The weekly build over the past five years has averaged 495,000 barrels. Inventory was up just 99,000 barrels last week.
Midwest inventory is at 9.7 million barrels, 35 percent of its 27.5-million-barrel target. Inventory needs to build 742,000 barrels per week to hit the target. The weekly build over the past five years has averaged 622,000 barrels. Inventory was up 888,000 barrels last week.
Obviously, the needed inventory build looks challenging, especially given that current global prices are encouraging maximum exports. But again, the current expectation is inventory is going to build adequately for next winter. No doubt, how these inventories are trending as we get deeper into summer will have an impact on propane prices.
This type of information really doesn’t help us predict prices. What it does do is helps us evaluate risk and allows us to make an educated decision when positioning our supply portfolio to manage the risk.
Call Cost Management Solutions today at 888-441-3338 for more information about how Client Services can enhance your business, or drop us an email at info@propanecost.com.
WEEK IN REVIEW
Crude fell as traders decided to take profit on the gains that have been largely generated by the crisis in the Ukraine. The fundamental picture for WTI is more on the bearish side supporting the profit taking.
We think falling crude influences propane this week and that prevents us from being bearish despite this week’s fall in prices. We are neutral to start the week.
LAST WEEK'S DAILY HIGHLIGHTS
Monday: Propane prices slipped a little the first day after the holiday weekend. An accord to bring peace to Ukraine signed on Friday was already on a slippery slope after pro-Russian separatists refused to give up government buildings and at least three had been killed in confrontations with Ukrainian forces.
Tuesday: Both crude and propane prices fell sharply on the day. Propane traders appeared to be anticipating a good inventory build. Crude traders seemed to be reluctant to buy crude with so much geopolitical premium already built in.
Wednesday: Mont Belvieu propane recovered its Tuesday loss after the U.S. Energy Administration reported a very light build in Gulf Coast propane inventory. However, an above-average build in the Midwest sent Conway a step lower. Crude was down on a larger-than-expected crude inventory build.
Thursday: Propane prices were fairly flat despite good trading volume. Crude recovered its previous day’s loss as more pro-Russian separatists were killed in confrontations with Ukrainian forces.
Friday: The volatility continued for Conway propane prices as they fell to 107.5 cents before recovering some of the loss by the close. Mont Belvieu prices went backward as well, assuring it would join Conway with a weekly loss. Crude tumbled on pre-weekend profit-taking with a lack of headlines from Europe, seeing traders more focused on fundamentals.
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COST MANAGEMENT SOLUTIONS
Cost Management Solutions LLC (CMS) is a firm dedicated to the analysis of the energy markets for the propane marketplace. Since we are not a supplier of propane, you can be assured our focus is to provide an unbiased analysis.
Market Information Services
The Propane Price Insider, an e-mail service that provides:
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Three Daily Price Flash Wires
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Periodic Option Quotes
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Wednesday Inventory Data Updates around 11 a.m. ET
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Evening Report with Executive Summary, Trader's/Hedger's Corner, Weather maps and complete review of energy prices that are based on Propane's Btu Equivalent
Free trial!
For a free 10-day trial subscription by e-mail, sign up online here or call toll-free at 888-441-3338.
Client Services
Many retailers simply don't have time to analyze the large amounts of data to make an informed purchasing decision.
We offer:
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Detailed market recommendations on hedge and pre-buy entry points
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Prompt market execution of hedging strategies
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Supply cost analysis and recommendation as to effective hedging strategies
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Because of the volume of transactions we place annually, we receive large volume consideration when we place your hedges
Visit us online at www.propanecost.com. Or e-mail info@propanecost.com.
Contact us today to see if you can benefit from having the Energy Price Watchdog working for you.
Dale G. Delay 888-441-3338, ddelay@propanecost.com
Mark Rachal 888-441-3338, mrachal@propanecost.com |
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