US propane inventory could reach highest post-winter level on record

The dramatic fall in U.S. propane inventory slowed two weeks ago and came to a full stop for the week ending March 11. For that week, the Energy Information Administration (EIA) reported that U.S. propane inventory had increased 180,000 barrels. Gulf Coast inventory increased 465,000 barrels, while Midwest inventory declined just 262,000 barrels. The light draw in the Midwest inventory was the bigger anomaly, given that inventory there has averaged more than a million-barrel decline in week 10 of the year over the last five years.

Propane prices kept moving higher as a strong run in crude overwhelmed any concerns about last week’s inventory build. Two weeks straight of bearish inventory numbers could have put propane prices into a correction had it not been for upwardly racing crude. Indeed, propane prices have lagged gains in crude lately, but it has not separated completely.

Two weeks of bearish inventory data perhaps relieves some concerns about propane supplies going forward. However, they do not erase the fact that propane inventory has fallen 33.841 million barrels since the first of the year, which is 14.546 million barrels higher than the five-year average draw over the same time.

Adding to the concern is that the drop has occurred during a winter that has seen an 18 percent drop in heating degree-days from last year. Last year’s relatively cold winter only produced a 21.366-million-barrel inventory decline in the first 10 weeks of 2015, or about 12.5 million barrels shy of this year’s drawdown.

Certainly, propane marketers will take comfort in the fact that propane inventory could exit this winter at somewhere around 60 million barrels, which would be the highest post-winter inventory level on record. Last winter’s inventory low also was at a record with a final drawdown to 53.744 million barrels. That high end-of-winter position resulted in propane inventory reaching a record high of 106.202 million barrels before beginning to decline in mid-November.

As comforting as the current inventory position is for propane buyers, this year’s inventory drawdown is nonetheless worrisome and hard to ignore — in fact it has not been ignored. Propane’s relative value to crude has doubled since last summer, from 25 to 50 percent, even with inventories at record highs. It’s a certain sign traders are seeing a change in the fundamental landscape for propane.

For more Cost Management Solutions analysis of the energy market that helps propane retailers manage their supply sources and make informed purchasing decisions, visit www.lpgasmagazine.com/propane-price-insider/archives/.