Trader's Corner: The latest propane market insights

DIGITAL EDITION THIS WEEK'S TOPIC: PROPANE PRICING AND INVENTORY Tight propane inventory deserves more attention than weekly expectations By MARK RACHAL Cost Management Solutions     U.S. propane prices are hammered when propane inventory data doesn't line up with industry expectations. For example, on March 22, the U.S. Energy Information Administration reported a minor 135,000-barrel draw on U.S. propane inventory. Yet the industry expected a 1.7-million-barrel decline. However, the five-year average inventory change for week 11 of the year, which corresponds to that March 22 report, was a small build of 41,000 barrels. As the chart shows, even the slight draw kept inventory under the five-year average for week 11 of the year. That is quite remarkable given inventory has been much higher than the five-year average over the last couple of years. Note from the chart that in 2016 inventory was setting five-year-high marks and – in reality – record highs for the end of winter. After the draw reported on March 22, U.S. propane inventory is now at 44.333 million barrels. Propane inventory was at 62.5 million barrels during the same week last year and at 54.584 million barrels at this point in 2015. In the best case (i.e., inventory starts building with the next report), the inventory build for next winter will start at 18.167 million barrels below the build for the past winter. Even small draws add to this deficit, which we think has more significance than the inventory draw being below expectations one week or another. It was only three weeks ago that inventory fell 4.081 million barrels. (continued below) Since the first week of the year, inventory has declined 35.326 million barrels. During the same time last year, inventory fell 33.841 million barrels and in 2015, it fell 21.366 million barrels. At this point, any inventory draw is adding to an already tighter inventory situation when compared with the last two years. And each week that inventories draw is one less week for them to build to meet next winter's needs. It is important to remember that this tightness in inventory is happening during a very mild winter. U.S. inventory began the winter of 2015-16 at 106.202 million barrels. It began the winter of 2016-17 at 104 million barrels. There is a very good chance that inventory will begin the winter of 2017-18 at a substantially lower level. Our concern is that deflating prices simply because an inventory draw is below expectations seems to be overlooking the bigger picture. The more prices are depressed in the near term, the more likely export volumes will remain high. Our fear is that this is only going to hurt this year’s inventory build and potentially create a far worse pricing scenario later this year. WHAT IS COST MANAGEMENT SOLUTIONS? 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 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. 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. Dale G. Delay, 888-441-3338 ddelay@propanecost.com Mark Rachal, 888-441-3338 mrachal@propanecost.com Many retailers simply don't have time to analyze the large amounts of data to make an informed purchasing decision. We offer: Detailed market recommendations on hedge and pre-buy entry points Prompt market execution of hedging strategies Supply cost analysis and recommendation as to effective hedging strategies Large volume consideration when we place your hedges GOT STORY IDEAS? Email Brian Richesson, Editor in Chief LOOKING FOR ADVERTISING OPPORTUNITIES? Email Brian Kanaba, Publisher