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DIGITAL EDITION
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THIS WEEK'S TOPIC:
PROPANE INVENTORY
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Where did propane inventory stand at the end of 2014?
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In this Trader’s Corner, the charts are going to tell the story.
The chart above shows the position of total U.S. propane inventory as we ended 2014 and begin a new year. Inventory is setting five-year highs and is at record levels for this time of year. At this time of year, we would expect inventory to be just above 50 million barrels. Instead, it is just under 80 million barrels.
Gulf Coast inventory has been setting new five-year high marks each and every week since June/July, as the chart above shows.
Even Midwest inventory, which was just above average to start the winter, is now setting new five-year highs (see chart above).
Perhaps it has been the change of Midwest inventory that best tells the story of this winter. Each week this winter, Midwest inventory draws have been below average and, in some cases, a build occurred.
During the first half of this winter, propane production has been 165,000 barrels per day (bpd) higher than it was during the same period last winter. At the same time, propane demand has been 238,000 bpd lower. That is a difference of 403,000 bpd more available supply.
Exports have averaged 162,000 bpd more this winter than last, which has taken up some of the excess, but that has left 241,000 bpd more to go into inventory. That means that just during the winter months, there has been around 24 million more barrels of propane to inventory this year than last.
The bottom line is that for the direction of propane prices to change, the fundamentals must change. Supply must decrease, or domestic consumption (petrochemicals, crop drying and home heating) must increase, or exports must increase.
By the end of the year, there will be about 6 million barrels per month of increased export capacity, with 4 million barrels coming on this quarter. That will slow down the inventory builds this summer, but it won’t be enough to eliminate the oversupply - assuming production continues to increase at current rates.
There is still time for this winter to make a difference in the fundamentals, but if it does not finish strong, it will mean that only petrochemical demand and the exports will have to not only handle new production, but drawdown inventory to support prices. It will then be September before crop drying and home heating will be part of the rebalancing equation.
If this winter’s demand does not get much stronger very quickly, it is hard to imagine how inventory will be managed without some decrease in the growth of supply. However, this week Citibank predicted U.S. natural gas production (which directly feeds propane supply) would continue to increase in 2015 and will likely taper off in 2016.
If Citibank is correct, and the growth in propane supply does not decrease this summer, it is hard to see anything but a bearish pricing environment - at least from a propane fundamental basis - until at least September or October.
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WEEK IN REVIEW
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It’s not surprising, with fundamentals very weak for both propane and crude, that prices were lower this past week. However, we are going neutral on propane to start the week, as we believe the current bout of cold will generate a little buying interest for as long as it lasts.
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LAST WEEK'S HIGHLIGHTS
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The first day back after the holidays saw commodities and equities markets get slammed as investors were in a selling mode. Crude, propane and heating oil all set recent lows.
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There was precious little letup in the rapid rate of descent in Mont Belvieu propane and crude prices. Conway actually accelerated its downward move. There remained a very bearish bias by commodities and equities traders, and that appeared to funnel into propane as well.
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The Energy Information Administration reported propane inventory drew a below-average 1.594 million barrels the previous week, but the draw was more than analysts expected. Conway managed a small gain after taking a 9 percent hit in value over the previous two days. Mont Belvieu was down for the third day in a row.
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Conway moved up 3.8 percent to erase some of its deficit for the week, but there was very little trading volume behind the gain. It would appear the fall to 39 cents at one point on Wednesday was enough for the sellers.
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Propane prices calmed down a bit to close the week with Mont Belvieu unchanged from Thursday’s close and Conway off slightly. Crude could not keep its rebound attempt alive and closed lower to end an already bearish 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.
We offer:
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Detailed market recommendations on hedge and pre-buy entry points
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Prompt market execution of hedging strategies
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Supply cost analysis and recommendation as to effective hedging strategies
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Large volume consideration when we place your hedges
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GOT STORY IDEAS? Email Brian Richesson, Editor in Chief
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