inventory

Flat Inventory Report Sends Propane Higher

Propane prices jumped sharply in the minutes immediately following this morning’s EIA inventory report, as the data showed propane did not show a seasonal build this week. Inventories remain at 67.6M/bbls this week as we get closer and closer to the end of September, which signals the end to the traditional propane inventory building time frame.

EIA

As you can see from the chart above, inventories stood at 91.9M/bbls one year ago this week, or 24.3M/bbls more than we have on hand at this time. Our year over year deficit moved back further into the red this week from last week:

8/09: -24.3M
8/02: -22.2M
7/26: -23.7M
7/19: -21.7M
7/12: -25.1M
7/06: -24.2M
6/28: -23.6M
6/21: -25.0M
6/14: -25.6M
6/07: -26.9M
6/01: -28.2M
5/24: -30.4M

We drew down 2M/bbls one year ago this week, which is the reason for the big year over year jump back.

Exports were off this week, from 827,000/bpd last week to 641,000/bpd, but demand for propane jumped over 400,000/bpd week over week, which accounted for the surprising flat inventory report. Had demand remained the same from one week ago, we would have had a build somewhere in the 2.8M to 3.5M range, but that was not the case.

Inventories built 12.1M/bbls from this time one year ago to the end of September 2016. I’ll still stick with my end of September prediction of 84M-86M range, but have a ‘zero’ build for one week may make the lower end of that range more likely than the higher. I don’t believe we will hit 90M/bbls by the end of September now, so I am taking that off the table.

This was a very bullish report for the propane industry, and as I said yesterday, there was a 50,000/bbl Dec-Jan call option that was sold with a $1.00 strike price and a whopping $.0350 fee. Someone is betting propane spot pricing is going to be moving up in the coming weeks and months, and with it out-month volatility. They may believe they will be able to turn around and sell that $1.00 strike for a fee greater than the $.0350 they paid for it and they have a lot of time on their side. Still, a $.0350 fee for a strike price that was nearly $.3000/cpg out of the month was an eyebrow-raiser yesterday, and now the spot markets are higher than they were before the inventory report came out.

CRUDE OIL: Crude saw another big drawdown yesterday, and this is a time of year where we have not typically seen such large draws:

As of this writing (11:13AM Eastern) crude oil is trading slightly higher and propane has traded at .7475 in Mt Belvieu this morning, which is $.0263/gallon higher than yesterday’s OPIS average.

Jon Miller
Marketing Representative for NGL Supply Wholesale in Tulsa Oklahoma. Follow me on twitter @PropaneBuzz

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