Inventory Crisis: Another April Draw

Propane inventories drew down 700,000/bbls for the week ending 4/14, according to this morning’s EIA report. This means we have DRAWN down 1.9M/bbls for the first two weeks of inventory reports for April, a month we typically see builds. We had a 1.2M/bbl build this same week, one year ago.

As I mentioned last week, we built 9.1M/bbls of inventory in April of 2016. To match that this year, we will need to see 11M/bbls worth of builds over the next two weekly inventory reports…or an average of 5.5M/bbls per week.

Folks, that is not happening and frankly, with export levels where they are, we will be lucky to build 3M/bbls over the next two weeks.

Exports were at 1.048M/bpd this week. We heard of no cancellations for May export cargoes this past week, and we have now gone beyond the cancellation date for May cargoes. What does that mean? It means that for the next six weeks, export levels are set…whatever folks ordered for export will be leaving and no cargoes will be cancelled.

I also think this means we will continue to see propane spot and contract prices move steadily higher. I am very surprised that prices are not already a dime higher than they presently are on the spot market, given we have just 39.6M/bbls of propane in national inventories right now.

That’s right; we have dipped below the 40M/bbls, something I began speculating on back on February 8th.

Here is the bigger issue; we are 29.3M/bbls BELOW where we were one year ago, nationally, pursuant to inventories. To put that in a more startling way, we have 42.5% less propane on hand for our industry right now than we did one year ago.

This industry has taught me a lot of lessons through the years, one of those lessons being you can rarely be certain of anything. However, there have been a few times where I was near certain on the direction of the markets.

The first instance was in 1999 when crude oil was trading below $15/bbl. I strongly encouraged my clients to lock in prices for as many years out as possible. Those that did that had some pretty amazing years.

The second instance was December of 2015 and January of 2016, where I strongly urged my clients in this space and on the phone to lock in their 2016-2017 prices as well as locking in 2017-2018 contracts, because crude oil was at $27/bbl and we were seeing decadal low pricing. Those that did that had a good winter this past year and are set up nicely heading into this winter.

I believe the inventory situation we find ourselves in right now is going to be the third ‘crystal clear’ moment.

Propane prices are going to go higher than where they are right now. How do I know this? The only way export demand will slow down will be if prices move higher and American based propane is no longer the most attractive option for foreign entities. And the only way our industry is going to have a chance to build inventories back to less than emergency levels is if export demand falls off…and if export demand doesn’t fall off, prices are going to go higher.

Do you see this vicious yet predictable situation we find ourselves in?

As I wrote at the end of last week’s inventory report post, it’s not like we can’t see this train coming down the tracks at us…we can see it. Now, it’s just a matter of what you choose to do about it.

That line is not intended to be insulting…but it is intended to be harsh…because my job is to help protect my clients against storms such as these…and the storm clouds are gathering in plain sight.

(NOTE: I am traveling for work this week. I am in Indianapolis at the MPACT event right now, and will be in Nashville at the Southeastern from late Thursday through Sunday. If you are at either event and would like to meet up, please call my cell at 515-505-8000 and we can see about working in a time to meet. If you need to reach me this week, a call or text would be best.)

Jon Miller

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