Propane inventories drew down by 600,000/bbls for the week ending 11/24, this according to today’s EIA report.
Exports were pegged at 1.127M/bpd, but domestic demand fell from 1.119M/bpd to 1.107M/bpd. Production was up to 1.923M/bpd from 1.873M/bpd one week ago, but a bigger number that I saw was that production was at 1.731M/bpd one year ago this week.
Export demand is similar to one year ago…domestic demand was slightly lower than it was a year ago and production is nearly 200,000/bpd higher than it was one year ago…something to watch as we try to anticipate the rate at which inventories will deplete this season.
The following is not a prediction, just a projection based on year over year observations.
We took our present national inventory number of 73.2M/bbls and estimated similar exports over the next two and a half months relative to what we experienced last year during the same time frame. We added 200,000/bpd of increased production over last year’s levels for the aforementioned time period BUT also used the same domestic demand numbers that we experienced last year, which was one of the warmest years on record.
The result was a national inventory number that was below 35M/bbls by the middle of February, 2018. Last year, we averaged around 4.2M/bbls of inventory drawdown each EIA reporting week. For this exercise, that number was 2.8M/bbls (200,000 additional barrels of production per day, times seven days in a week is 1.4M/bbls, or the difference between 4.2M and 2.8M).
Were this to happen, I don’t believe we’d see widespread panic in the trading community in February, as while winter would not be over at that point on the calendar, you can see the end from there, and thus the emotional concerns over supply shortages would likely be assuaged.
However, I believe there could be fireworks on the emotional front over the course of the next 45 days, possibly the first two to three weeks of January being the primary time frame of concern for the most extreme volatility we will see this year.
Having just written that, I want to circle back around to what I emphasized above: BUT also used the same domestic demand numbers that we experienced last year, which was one of the warmest years on record
For this, lets segue into weather forecasting discussions before we revisit this point one last time.
MDA GETS COLDER: MDA is one of the most subscribed to commercial weather services in the energy industry and as I have mentioned several times the past five or more months, they did a very good job forecasting each of the past two warm winters. They have been calling for this coming winter to be on the colder side since I attended their winter weather webinar.
They just released their final December 2018 forecast, today:
Draw your eyes to the numbers beneath the December map. Notice the ‘878’ number and see how it’s higher than the 10-year December average, the 30-year December average and the GWHDD’s for December of 2016, which was the coldest month of last winter. 878 is colder than all three of those time periods. MDA’s January call is colder than the 10 and 30-year averages and 18% colder than January of 2017.
Granted, these are forecasts…they need to verify…but if both of these forecasts did verify within five percent of what they are calling for, we will see domestic demand be much stronger this year than last year and that 2.8M/bbl per week draw estimate I used above would most certainly be higher, and thus, the mid February inventory projection of 35M/bbls would also be too high. If it were more like 28M-30M/bbls, this would be an area where emotion and volatility could spill over into February as well. Once again, that example from above is not something I am willing to call a prediction, rather, it’s a hypothesis…or an educated guess at this juncture, based on realistic inputs.
MORE WEATHER…I watched a video from BAMWx.com this morning that was titled ‘A Blockbuster Winter Pattern Looks to Develop Week Two‘. Here is their updated December and January outlook:
Here are some tweets from this morning I have scraped together from the internet:
Looking at the week 2 pattern from a historical standpoint, specifically at the top 3 years, we can see high-support for a major pattern change to colder into December #NatGas #OOTT #MISO #Energy $ung pic.twitter.com/h9E2j1ArvS
— Kirk 🌽 Hinz | BAM Weather (@Met_khinz) November 29, 2017
The cold showing up in the week 2 period & beyond is the real deal. Higher #energy demand in key spots & a locked in high lat blocking pattern for the time being. The trends continue on a daily basis to support a standing -AO. -AO strongly correlates to estrn US cold! #natgas pic.twitter.com/S8YUo5yNA3
— ☀️Michael Clark🌽 (@Met_mdclark) November 29, 2017
On the second tweet, from Michael Clark, click on the map in the upper left and notice the three yellow circles. This is a projection of where lobes of the Polar Vortex will be, around December 9th. This is the coldest air on the planet, and those three lobes will be positioned over the three most populous areas of the Northern Hemisphere; the eastern United States, Europe and the 1.6 billion inhabitants of East Asia.
I bring up this last aspect pursuant to the export trading arb for propane. At the present, it appears to be closed, so there won’t be many spot cargoes leaving the United States. But if demand for propane is strong in Northern Europe and Asia, as these projections would support, they are going to need more propane and that means they will pay more to get it, which would lead to a few things:
- The possible reopening the trading arb for American sourced propane to supply those markets, which would help to push American propane prices higher due to stronger export demand
- Higher prices for American propane due to a) demand for it, based on colder forecasts and/or b) higher prices for American propane in order to keep it here in the states and close the trading arb again.
These are the two most probable scenarios, at least in my estimation, barring a winter that just goes blowtorch warm.
I remain convinced that we will see upward price pressure on propane in the coming 45 to 60 day period. Given some of these weather forecasts and if they verify, we will also see some logistical challenges in the Ohio Valley and into the Northeast at times.
The weather looks warm for the next week or so. I will be very blunt here; fill up your storage tanks over the next seven days, because this may be the last time you are going to be able to catch your breath for the next several weeks.
Depending on where you are, it might also be a good time to top off everyone in your service areas as well, and then replenish your storage tanks, because just filling your storage tanks while your end users are going to require a ‘refill’ in a week or two doesn’t really get you all that far down the road with regards to preparedness.
Good luck out there!