That title does seem a bit bombastic, but I wouldn’t have written it if I didn’t believe it.
Tomorrow’s EIA report is one of the most anticipated reports since the first few days of February 2014, when the industry was teetering on the brink of its version of Armageddon.
Propane prices are nowhere near as high right now as they were back then, but here are a few reasons why I believe tomorrow’s report will set the tone for this supply season:
COLD!: Next week’s report will be for the time frame of December 20th through January 5th, which was one of the coldest in recorded history:
— The Weather Channel (@weatherchannel) January 9, 2018
Record cold…recorded history…and next week’s report could be interesting, too.
MAKE UP: As I wrote last week, I believe the 700,000/bbl draw was inaccurate and the reporting period during the Holidays is typically suspect. Industry guesses for tomorrow’s draw range between 5M/bbls to 10M/bbls. Our internal analysis of the export waterborne report combined with the demand expectation is somewhere right in the middle. To that end…
HISTORIC DRAW? The largest weekly draw in history occurred last winter for the week ending January 13th, and it was 7.4M/bbls. That drew inventories down to 79.8M/bbls, and while it was a very warm winter, we did see in-season pricing move up roughly $.40/cpg between late November and the first few days of February.
A lot of industry folks believe tomorrow’s EIA report will show a draw in excess of the all-time record. If we hit an 8M/bbls+ draw, inventories would dip below 59M for the nation just five days into January. If we see that, I also think we will see a gonzo draw next week, as well. If these things happen, I believe pricing could be off to the races for a while, with supply is incredibly tight east of the Mississippi.
HOWEVER, if the EIA once again offers us a head fake and shows an underwhelming draw when the market is expecting a sizable draw (even though the trading community doesn’t seem to be preparing for it), we could see the market really come off and fears of national level supply shortages would dissipate and be unlikely to materialize this winter.
Pricing is already getting uncomfortable off-hub, as we are seeing spot loads (where available, which is not all that common right now in some regions) are fetching Mt Belvieu +.3000 or higher in the Ohio Valley and much more than that the farther you get into the Northeast. Folks who have index contracted values in the Ohio Valley at the +0800 to +1500 range are protected from this basis blowout, which is a reminder of the value of index contracts.
There are some areas of the country where folks are saying ‘price doesn’t matter, I just need the gas,’ and we have not seen such dire straights since January of 2014. In my opinion, in the Ohio Valley and up into New England, we are about one more week of below normal temps away from January of 2014 conditions, where people begin sending trucks 400+ miles from home in order to get a load of propane.
Just today, I have helped some clients procure gallons 350-miles or more away from their home base, as their local supply points are allocated and they cannot get all they need within their own area code.
The trading/export arb is still open, by the way.
Tomorrow is where we meet the fork in the road for this winter, at least in my opinion. I just don’t see us treading water in a murky middle beyond this point.
WEATHER: There is a bit of a warm up coming, but how warm and for how long is still very much up for debate. Here are some recent tweets from the meteorological community:
— BAMWX (@bamwxcom) January 8, 2018
^^This is why there is skepticism on the intensity and duration of the transient warmth being forecast.
Keeping an eye on next week (Tue-Wed / 16-17th) for snow chances in the Northeast — cold wave over the central U.S. is forecast to be less progressive & is allowing for more of a thermal gradient near the East Coast. pic.twitter.com/UXgGy90I5l
— Ben Noll (@BenNollWeather) January 9, 2018
^^Notice the retrogression of the warmth back up into Canada, and the cold doing the same east to west from model run to run.
Boat loads of January thaw dropping into the eastern US next 10 days portrayed on latest GFS (sarcasm). Just your run-of-the-mill PNA from Niña forcing. pic.twitter.com/yDh3xvjq2m
— Anthony Masiello (@antmasiello) January 7, 2018
^^This shows the warm up basically ‘now’ through the 12th, then more cold coming back through the 17th. After the 17th, the models are suggesting another shot of warmth through around the 23rd or so.
Wondering why the late week potential major #winter storm is different from your typical winter storm? Look at the deep Gulf moisture filtering into the Ohio Valley, over 400% the normal! #snow #AGwx pic.twitter.com/d6M8HddN1M
— Kirk ❄️ Hinz | BAM Weather (@Met_khinz) January 9, 2018
^^This will put down more snow over areas that have experienced record cold and will make it more challenging for them to w’warm up’. This is an area that is also averaging 8 to 10 GWHDD’s below normal between November 1st through January 8th, or one of the coldest regions in the United State compared to normal (Map from MDA).
This next tweet is worth noting for February:
Past few GFS runs have been predicting the most aggressive warming into the polar stratosphere easily resulting in the most significant disruption of the #PolarVortex so far this winter, displacing #cold into North America. Still lots of uncertainty but has caught my attention. pic.twitter.com/BXBbUFZexC
— Judah Cohen (@judah47) January 9, 2018
^^If this would come to pass, and the Polar Vortex is perturbed by this heat over the Arctic at the intensity Dr Cohen mentions, then February could go back into the ice box.
Snap on your chin straps and we’ll see you tomorrow.