Crude, Crops & Weather

CRUDE OIL:   Propane prices have clearly been following the fortunes of crude oil this spring, even though this should not be happening, at least, in my opinion.

2/2/2017: Crude oil was at $53.51/bbl and propane was at $.9487/gal in Mt Belvieu. Propane was at a very, very high 74.42% of crude at this time, but the propane run up was driven by fundamental concerns on some supply issues as we were just beginning February and we did not yet realize that we would blow torch the rest of the year.

3/13/2017: Crude oil was off over $5/bbl, closing at $48.48. Propane’s OPIS average in Mt Belvieu that day was $.6656/gallon, for a 57.66% propane to crude price relationship, which was back in the historic range.

3/27/2017: Crude closed at $47.73, which was less than $.40 cents north of the 2017 crude trading low. Propane averaged $.5618/gallon that day which is also the lowest daily average for propane values so far in 2017. The propane to crude ratio was 49.44%.  How about them apples?

4/12/2017: Crude rallies to close at $53.11 and propane also rallies, gaining over $.12/cpg in 16 calendar days to close at $.6825/gal in Mt Belvieu and settling in at 53.97% the value of crude oil.

4/27/2017: Crude goes back down over the next 15 days, to close at $48.97/bbl. Propane loses just under $.08/cpg of value during this same time, to close at $.6056, 51.94% of crude oil.

YESTERDAY: Propane’s Mt Belvieu average was $.6050 while crude closed at $48.84/bbl. That’s a 52% propane to crude ratio.

Do you sense a theme here? Take a look at this image which tracks the ebbs and flows of crude and propane since January 1st, 2017…these are very parallel movements, and while there are a few outliers (like the aforementioned early February propane spike), a trader would look at this chart and certainly see a symbiosis. The red line is the daily settle for crude oil, shown in value per gallon instead of barrel to true up with propane. Propane’s daily OPIS settle in Mt Belvieu is shown in pink. The vertical lines connecting the two just illustrate the shape of the channel:


The blue arrow is pointing to the outlier from early February. Other than that time, by and large, the channel between crude and propane has been a very similar value and propane’s price movements have paralleled that of crude oil.

While this is all nice and neat, it’s also infuriating to me. Propane should not be tracking crude oil right now; I believe it should be detached from crude oil, given how bullish propane inventory fundamentals are at this time.

Tomorrow’s EIA inventory report will likely show another 850,000/bpd to 900,000/bpd worth of propane exports, based on some of our preliminary analysis of waterborne reports. If that comes to fruition, we’ll likely see propane show a build of less than 1M/bbls for the final week of April. That would mean propane will have drawn down its inventory in the month of April for just the second time since 1985; 1990 is the only time we’ve seen an April draw.

I keep wondering to the point of twisted fascination as to when our industry is going to wake up and see the inventory challenge that is bearing down on us. So far, by and large, it is still blind to this threat.

CORN & WEATHER: Corn prices are edging higher on some worries that the spring rains may impact yield for the 2017 corn harvest. This past weekend saw enormous amounts of rain delivered across a good swath of the corn belt:


My friends over at BamWx don’t believe the rains and cool temps are over:


That pattern look familiar?

Oh, and hey, here is a shot of deer swimming across a cornfield in south-central Illinois:

Here is the latest USDA crop report, showing percentage of corn acres planted. Draw your eyes to the two columns circled in red…this will compare year over year planting progress as of April 30th, 2016 & 2017. The red dashes indicate states which are behind on last year’s page…the far right is representative of the last five years worth of crops and the average timing of acres planted as of right now.

Corn Planted

Iowa and Illinois are the two largest corn producing states. Iowa is well behind last year’s planting pace and also behind the five-year average. Illinois is right on par with last year’s percentage and ahead of the five year average, but the southern two-thirds of Illinois has been pounded by heavy rains with more on the way…there could be some replanting needs in some areas.

Indiana and Ohio are ahead of the game, while Minnesota, one of the top five corn producing states, is well of last year’s pace as well as the five-year average. Nebraska is the third-largest corn producing state and it’s ahead of the game and has avoiding most of the heavy rainfall.

It’s far too early to begin to cast guesses as to grain drying. To be blunt, we’ve been set up well for some grain drying gas the last two years, only to see such prospects literally dry up in the fields under the heat and winds of two of the warmest Septembers in the history of the corn belt.

Still, the things that are taking place right now, weather wise, plant wise, etc, help to create the conditions under which grain drying can take place. Maybe. Possibly. Perhaps. We’ll see.

To be frank, grain drying may be the last thing our industry needs this year, given the inventory challenges looming on the horizon.  Then again, the only thing that will stave off exports and thus allow us to keep inventories here in the states will be higher propane prices.

Jon Miller

Follow me on twitter @PropaneBuzz

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