DIGITAL EDITION THIS WEEK'S TOPIC: PROPANE INVENTORY What’s behind the big propane inventory builds? By MARK RACHAL Cost Management Solutions     By the middle of October, propane inventories are usually transitioning from building to drawing. Typically during the first two weeks of October, there would be little change in propane inventory as demand catches up to supply. In fact, the five-year average change for week 41 of the year (the week that ended Oct. 9) has been up 35,000 barrels. However, the Energy Information Administration in its Weekly Petroleum Status Report released on Oct. 16 (delayed due to the holiday) showed a 1.822-million-barrel build in U.S. propane inventory. That followed a 1.602-million-barrel build the previous week that pushed inventory to more than 102 million barrels. Inventory builds looked like they were beginning a typical seasonal leveling off four weeks ago, but since then the builds have been anything but typical. It is not coincidental that the late September strength in propane has faded as a result. So why is inventory building at 1.8 million barrels during a week that has averaged 35,000-barrel builds over the last five years? Let’s look at some of the inputs. On the supply side, we have production and imports. Propane production fell from its summer highs six weeks ago and actually fell behind last year's rates for a while. But over the five-week period since the drop, production has leveled off and last week managed to set a five-year high for week 41 of the year. Propane imports have been almost an afterthought in recent years as the U.S. transitioned from being a net importer to a net exporter of propane. Most of our imports come from Canada. Canada lost all of the excess propane inventory it had from last winter. Inventory in Canada is now at the five-year average. It appears Canadian producers have been pushing as much propane south as possible, with a milder winter in Canada and the northern U.S. expected. Last week, U.S. propane imports spiked to set a new five-year high for week 41 of the year. On the demand side, U.S. exports remained high at 589,000 barrels per day (bpd), a little off from the 600,000-bpd record-high rate of June and July. Petrochemicals are still using about 150,000 bpd more propane as feedstock this year than last year, but overall domestic demand is lagging. U.S. domestic propane demand has set five-year lows over the last three weeks. With petrochemical usage up, demand from the retail sector is well off for this time of year. (continued below) It appears that all of the cheap gas this summer has consumer and retailer storage in good shape. In addition, crop drying is looking like a non-event with good, natural drying conditions present for the corn crop. Winter heat load has not kicked in and, unfortunately, forecasts are showing above-normal temperatures in the highest demand areas for this winter. The bottom line is that domestic retail demand needs to kick into high gear soon or these inventory builds could venture much deeper into winter than normal. Usually mid-October is when inventory peaks, though we have had two years where it didn’t peak until November. If domestic demand doesn’t kick into high gear soon, then 2015 could be the third year since 2003 where the inventory build peaks very late. WEEK IN REVIEW Propane and crude were back to trading fundamentals, which had prices retreating. Propane lost nearly 10 percent of its value with a heavy loss over the first four days of last week. We moved to neutral by early last week and had moved to a bearish outlook by the end of the week after the big builds in crude and propane were reported. LAST WEEK'S HIGHLIGHTS Reports showing the Organization of the Petroleum Exporting Countries (OPEC) production remained around 2 million bpd higher than demand for its crude, with crude dropping sharply and propane following. Even though OPEC remained confident of future demand, the current supply/demand balance is bearish for prices. Propane prices continued in their weak patch, outpacing crude to the downside. Crude dropped lower as the International Energy Agency dropped its expectations on how much global crude demand will increase next year, from 150,000 bpd to 1.21 million bpd. Worries about China’s slowing economic growth kept crude prices subdued. Propane prices continued to slide a day ahead of the weekly inventory data, which was delayed for a day with the holiday. Propane traders appeared cautious with the previous week’s 1.6-million-barrel build on U.S. propane inventory still fresh on their minds. A 1.822-million-barrel build in U.S. propane inventory sent propane prices sharply lower. Crude prices limited losses even though crude inventory built a massive 7.562 million barrels. Draws in refined products inventory helped limit the losses for crude. Crude managed a modest gain, but there were reports that buying interest was mostly from traders that were previously short crude and wanted to take profits on this week’s gains in their short position. A decrease in active U.S. drilling rigs supported crude late. Propane managed to end its sharp decline with a modest gain.   CONNECT 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. 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