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DIGITAL EDITION
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THIS WEEK'S TOPIC:
PROPANE INVENTORY
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A look at recent uncertainty over propane inventory
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Last week, an industry source shook propane markets a bit by reporting that the Energy Information Administration (EIA) underreported propane inventory during September. They further speculated, “…very anemic apparent consumption levels indicated by the weekly propane inventories are the result of EIA’s retroactive adjustment of the inventory total to properly reflect the real level of inventories as they were revealed by more complete and accurate storage numbers.…”
Each week, the EIA releases estimates on changes in just about every aspect of the energy industry, including propane inventory. The more complete and accurate storage numbers referred to by the industry source were the official monthly data that lags the weekly estimates by several weeks. The monthly data for September was recently released and showed U.S. propane inventory was at 82.371 million barrels at the end of September.
In the weekly estimates, the EIA had reported inventory at 79.560 million barrels on Sept. 26, and at 80.645 million barrels on Oct. 3. Using the weekly numbers, it would appear that inventory would have been 80.18 million barrels on Sept. 30. That means the weekly estimate was 2.191 million barrels below what was reported in the official monthly data.
For reference, the weekly inventory estimate was about a million barrels lower than the official monthly data at the end of August. The weekly estimate was about 0.415 million barrels higher than the official monthly data at the end of July.
Obviously, there is going to be some difference between the weekly estimates and the official data. And we suppose the EIA is always making adjustments to amend data as more complete and reliable information becomes available. However, as the industry source pointed out, “Ironically, most of the error was confined to PADD2 (Midwest) stocks, mainly the Group 140 storages surrounding Conway, Kan. That is just where inventory data at this time of year is most sensitive, and where the retroactive corrections would create the most turmoil.”
If “adjustments” were being made during the heart of crop drying season, it certainly contributed to the confusion generated by the surprising inventory builds that occurred when the industry was expecting large draws.
The confusion, uncertainty and caution generated by the source’s assertions did not go away with the latest EIA inventory data. This past week, the EIA reported that for the week ending Nov. 28, propane inventory went up 215,000 barrels. That inventory number was just as surprising as the nearly 2-million-barrel draw reported for the week ending Nov. 21.
It does not change the conditions of propane inventory.
Inventory is at record highs either way. However, the confusion really comes in when trying to determine where true demand and/or supply is running if adjustments are being made. A week ago, when the 2-million-barrel draw was reported, it would have been easy to believe it was a buying opportunity with prices supported and the potential for more support to come.
Then last week, EIA reported the 215,000-barrel build. It makes it tough to decide what to do. Is this build the result of an adjustment or is it the reflection of true demand? Obviously, if it is the reflection of true demand, it is very bearish.
This kind of uncertainty means we should seriously consider options: Put options to protect from downside price risk and call options to take advantage of a potential rebound.
There was plenty of uncertainty in the market already, even before we were given reason to doubt the EIA data. Options are a conservative play and their premium can be hard to accept, but when you think of all the potential scenarios for this winter, being conservative may be the best policy.
There is contact information in this report if you would like to speak with someone about how options work and how much the premium is running. And of course, we encourage you to take a look at our daily services with our free 10-day trial if you have not done so already.
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WEEK IN REVIEW
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Energy prices have been in a very bearish mode and that did not change last week. Propane fell sharply to begin the week as it caught up with losses suffered by crude since the Organization of the Petroleum Exporting Countries’ (OPEC) decision to not cut production to support crude prices. Then, propane traders were surprised by another build in U.S. propane inventory.
We go into the week bearish, with more downside possible for crude and propane likely to follow due to a lack of fundamental support.
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LAST WEEK'S HIGHLIGHTS
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Propane prices fell sharply after no trading activity through the Thanksgiving holiday. Propane was catching up to a sharp fall in crude prices that occurred after OPEC said it would not cut production. Crude actually rebounded after losing 12 percent in value since Thursday.
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Crude resumed its downtrend, helping pull propane prices lower. Both major U.S. propane hubs gave up around 5 percent in value, outpacing crude to the downside. A report saying that the EIA underreported U.S. propane inventory at the end of September was bearish for propane.
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The EIA shocked propane markets with another inventory build of 215,000 barrels, causing propane prices to remain in a sharp downtrend. Crude managed a small gain on a crude inventory draw of 3.7 million barrels. Analysts had expected a build in crude inventory.
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The fallout from the surprise inventory build for propane kept prices retreating rapidly. Saudi Arabia said it believed Brent crude would stabilize at around $60 per barrel, about $10 below current price. The estimate sent crude prices lower.
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Propane prices dipped to less than 60 cents per gallon as the weeklong selloff continued. There were plenty of reports of traders/investors selling off propane to keep the downtrend unabated for the week. Propane gave up about 24 percent of its value last week.
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CONNECT
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WHAT IS COST MANAGEMENT SOLUTIONS?
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The Propane Price Insider is an e-mail service that provides:
- Three daily price Flash Wires
- Periodic option quotes
- Wednesday inventory data updates around 11 a.m. ET
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Evening report with executive summary, weather maps and complete review of energy prices that are based on propane's Btu equivalent
For a free 10-day trial subscription by e-mail, sign up online here or call 888-441-3338.
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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.
Contact us today to see if you can benefit from having the Energy Price Watchdog working for you.
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Many retailers simply don't have time to analyze the large amounts of data to make an informed purchasing decision.
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