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Dear Propane Price Insider readers:
On Oct. 6, your PPI newsletter is getting a makeover. In addition to a fresh redesign, the newsletter is undergoing a name change. It will be called Trader's Corner. The new name will reflect the strategic role that propane marketers play – deciding when to buy and sell their supply in order to protect customers in a volatile energy market and maximize business profits. Please be on the lookout for this name change in your inbox so you won't miss this valuable weekly propane market report.

Trader's Corner

This week’s Trader’s Corner looks at the first inventory draw of the year and compares it with history.

To say that markets were a bit surprised by the inventory draw that was reported by the Energy Information Administration (EIA) for week 36 of the year in its Weekly Petroleum Status Report last Wednesday would be an understatement. In fact, a poll of industry traders prior to the report showed an average expectation for a build of 1.3 million barrels.

Instead, inventory fell 78,000 barrels. On average, over the past five years week 36 inventory had increased 961,000 barrels. Propane prices, which had already been in an uptrend since Aug. 18, got plenty of additional support from the surprise draw.

When these surprise events occur, we believe it is important to put them into context. Was this event different from anything that happened before? Can we predict anything with a reasonable amount of certainty because this event occurred?

What is the initial reaction to an inventory draw? It is the end of the inventory building period, the winter season has begun and supplies will only get more scarce until winter is over. We will use the table below to determine if those are the assumptions we should make.

First inventory Draw

In the table above, we identify the week of the first inventory draw of the year for each year since 2003. That is followed by the inventory position as reported during the week of that draw.

Next, the table shows the week of the peak inventory position for that year, followed by the inventory level reported that week.

During the years in which the numbers are in red, the peak inventory position occurred one or more weeks following the first inventory draw of the year. Between 2003 and 2013, there were six occurrences where the peak inventory position followed the initial draw. In other words, after the initial draw was reported, at some point later inventory started building again. Over those 11 years, that has been the case more than half the time.

In fact, the peak inventory position can sometimes occur well after the first draw. The most extreme case occurred in 2005, when the inventory draw took place in week 35 but the peak inventory position wasn’t established until week 48 of the year.

It is very clear, when looking at the data, that during the years when the first draw marked the end of the inventory build period (the week prior to the draw was the high inventory for the year), the first draw occurred between weeks 40 and 42.

The implication is that these very early draws rarely represent the end of the inventory build period.

So calm down and back slowly away from the ledge. Even with last week’s draw, propane inventory is 76.046 million barrels, the highest position it has ever been when the first draw has occurred. Further, odds are the peak inventory position has yet to be hit. Having said that, it is important to note that there has been a lot of changes in propane production and export capacity over the years. It is getting harder and harder to use historical data to predict the future because of all the changes.

Let’s not make panic buys here, at least not because we think inventory is about to get drained. There is a chance week 35 will turn out to be the peak inventory position of this year at 76.124 million barrels. But even then, the odds favor inventory still being in a strong position even in week 42-43, which generally marks the peak inventory position.

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
We go into the week bullish on propane and bearish on crude. Crude is getting geopolitical support that is causing volatility, but in the end, weak fundamentals keep it in its downtrend. Propane is in an overbought position, with prices in an uptrend that began after Aug. 18. However, seasonal factors have us believing the primary risk for now is to the upside.

Monday: High trading volume coming out of the Labor Day holiday pushed propane prices higher, extending an uptrend that began after Aug. 18. Crude, which had spiked higher the previous week, was well on its way to relapsing into its longer-term downtrend that began in June.

Tuesday: Propane edged higher on seasonal demand. Crude found support from the possibility of OPEC lowering production to support prices, but worries about demand limited the upside.

Wednesday: The EIA surprised propane markets by reporting a small draw on propane inventory. A draw on the Gulf Coast had national inventories down even though Midwest inventory grew at an above-average pace. Crude fell sharply on a light draw on U.S. crude inventory and large builds in refined products inventory. Also, Organization of the Petroleum Exporting Countries (OPEC) lowered its growth in crude demand forecasts.

Thursday: Rhetoric between the U.S. and Russia over the possible use of military forces by the U.S. in Syria to combat Islamic State extremists sent crude up, while propane continued to move higher due to seasonal factors. Crude had been lower in the morning due to a cut in global crude demand forecasts by the International Energy Agency, before the geopolitical news turned prices around.

Friday: Propane kept inching higher to close out the week as the industry prepares for what could be an active crop drying season. Crude struggled to hold the momentum it had gained from geopolitical events on Thursday. Weak fundamentals continued to dominate the crude trade.

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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.

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Dale G. Delay 888-441-3338,
Mark Rachal 888-441-3338,

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