First Propane Build of 2017 Season

Propane stocks finally experienced a build for the 2017 inventory building cycle, adding roughly 2M/bbls to their numbers.  This, according to the EIA’s report released on Wednesday morning.

National inventories now sit at 41.6M/bbls, whereas they were at 73.2M/bbls one year ago.  While we still have 43.1% less inventory on hand right now than we did the same time last year, the industry desperately needs inventories to build and this is a step in the right direction.

Exports were up this week over last, going from 764,000/bpd to 830,000/bpd this week, which begs the question as to how we experienced such a large build?

Propane demand, as reported by the EIA, was 707,000/bpd this past week, which is the smallest such number since April of 2016…it seems a bit suspicious to me, as I expected a build in the 500,000/bbls to 700,000/bbl range, and this demand number would be the ‘culprit’.   Production was off slightly this week and imports were virtually unchanged.

Some of you might then expect that propane prices would be softer right now, but as I have been writing (and somewhat lamenting), crude oil is your overlord at the present time.

This next bit is also something to file away:

In essence, we have seen 33M/bbls of the crude ‘overhang’ disappear since early February.  I suspect OPEC will pounce on something like this and try to jawbone the markets, saying their production cuts are having the desired effect, but that it’s just taking a little bit longer for the overhang to get soaked up.  Were it not for the rapid increase in US Shale production coming online, OPEC’s strategy would have likely worked well enough to not have to extend the production cuts into 2H2017…but we are in a new era and old strategies don’t work as well as they used to.

Here is another illustration that ‘supports’ the likely OPEC talk you will building this month as we get closer to their meeting in Vienna:

Now, United States stockpiles don’t necessarily reflect the global temperature, but we are the largest crude consuming nation on the planet and therefore a harbinger for the markets.  Not surprisingly, WTI crude oil is trading over $47/bbl as of this writing, after ending yesterday at $45.88, which was just off the 2017 low.

As I have been saying, regardless of how bullish the propane fundamentals are, crude oil is still driving the ship…and on a day where propane had its first inventory build of the 2017 build cycle, crude oil and related products see significant draws…and everything moves higher.  We’ll see if that holds throughout the rest of the day and week.


Jon Miller

Follow me on twitter @PropaneBuzz

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