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DIGITAL EDITION
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THIS WEEK'S TOPIC:
PROPANE DEMAND
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Volatile propane demand yields market uncertainty
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U.S. propane demand has become volatile, creating market uncertainty. In its Weekly Petroleum Status Report for the week ending Sept. 18, the Energy Information Administration (EIA) reported a 617,000-barrel draw on propane inventory that shocked propane markets.
The draw was caused by a sharp rise in propane demand from 975,000 barrels per day (bpd) to 1.244 million bpd. Just one week later for the week ending Sept. 25, the EIA reported a 1.665-million-barrel build in propane inventory. The build was the result of a drop in propane demand from the previous week’s 1.244 million barrels to just 792,000 barrels.
This type of one-week-up, next-week-down fluctuation has become the norm for propane demand estimates from the EIA.
As the chart above shows, the weekly demand numbers the EIA reports have historically been very choppy. Each week, propane markets react to the inventory numbers, which are greatly impacted by the demand number.
Normally, these fluctuations go unnoticed by the market during parts of the year with strong inventory builds or strong inventory drawdown. The volatility tends to show up during the transition from the build season to the drawdown season for inventory, which is where we are in the current cycle.
Strong demand one week, resulting in a surprise inventory draw or light build, may push buyers into the market. The next week, a huge drop in demand may cause inventories to build and push buyers to the sidelines.
(continued below)
We are not sure if these fluctuations in weekly domestic demand are a result of true fluctuation in demand or if they are the result of quirks in the data collection for the reports issued by the EIA.
We advise not reacting emotionally to the inventory data driven by these demand fluctuations this time of year. Instead, keep your eye on the demand trendline.
The trendline shows that demand for propane is growing as it normally does this time of year. It also shows that U.S. domestic demand is running right along the five-year average demand and has been most of the year.
Weekly fluctuation in demand might suggest differently, but U.S. propane demand over time has changed little from previous years. It is important to note that we are talking about domestic use of propane, which does not include exports. Propane exports are most certainly increasing, but they’re reported separately by the EIA. Our focus here was strictly on the destabilizing impacts of the fluctuation in domestic demand on propane markets this time of year.
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WEEK IN REVIEW
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Propane prices moved lower, with a 1.665-million-barrel build on propane inventory a contributing factor. Despite this week’s drop, we will remain neutral on propane with seasonal influences unlikely to let prices fall too much, even though inventory is high.
We remain bearish on crude. Global fundamentals remain weak. However, geopolitical issues could begin to outweigh fundamentals as tension grows in Syria.
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LAST WEEK'S HIGHLIGHTS
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Concerns about the global economy had commodities and equities prices off sharply to start the week.
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Crude continued to pull propane higher. Expectations for a draw in Cushing, Okla., crude inventory was the key driver. An improvement in U.S. consumer confidence was also a factor in the strength of crude.
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A surprising 1.665-million-barrel build in U.S. propane inventory sent propane prices sharply lower. Crude held up better as the expected draw on Cushing crude inventory did occur. However, data showed the Organization of the Petroleum Exporting Countries produced 110,000 more bpd in September than in August, which limited the upside for crude.
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Worries that Hurricane Joaquin would disrupt energy supplies on the East Coast sent crude and propane prices up in early-morning trade. However, concerns lessened by the end of the day. Crude and Mont Belvieu propane were negative by the end of the day, but Conway stayed positive. Russia’s military involvement in Syria became a key support for crude.
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Crude prices were extremely volatile as traders reacted to a weaker-than-expected U.S. jobs report. Propane generally followed crude, but fell off the pace at the end of the day as crude rallied to post gains.
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CONNECT
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WHAT IS COST MANAGEMENT SOLUTIONS?
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The Propane Price Insider is an email 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 email, 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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