CRUDE IS LEADING PROPANE: For the better part of the last two decades, as crude has moved, so has propane. There was a short span of time, say around 2013 through 2015 or so, where propane detached from crude oil and seemingly was its own master. We saw propane dip down below 40% the value of crude oil for an extended period of time at both the Conway and Mt. Belvieu (MTB) trading hubs, which was lower than the historical expectation of 50 to 60%. We were around 40% to 42% two years ago this week.
As of this past Friday, Conway was roughly 43% the value of crude oil while MTB was trading around 53% that of crude oil. This is due to the stagger $.1700/cpg spread between Conway and MTB that exists in spot marketing pricing at the hubs right now. Staggering, because it’s rare we see such a North-South spread in any month, much less the month of May.
Propane inventories experienced a sizable 2.3M/bbl build this past week, the type of build I have been expecting to see given the widely held belief that propane production is going to be very strong late spring and into the summer and fall. I don’t know that many traders have any concerns over a lack of propane inventory building this season, so market sentiment at the present time seems very much in the camp that propane is presently overvalued when judged by it’s own underlying fundamentals and the market’s beliefs that inventories will not be a problem for the coming winter.
Yet we’ve seen a $.1600/cpg run up in MTB pricing since April 4th and an $.1100/cpg rise in Conway pricing since the same date.
It’s all about the crude, as the black stuff has risen (WTI) over $7.00/bbl since April 4th due to a number of geopolitical factors.
Here is just an off the top of my head list of crude oil concerns that have either come and gone since then, or are still lingering on the horizon:
-North Korean saber rattling (this seems to have miraculously ended with detente)
-US-China Trade War talk (this seems to be cooling off)
-Venezuelan Economic and Societal Collapse (this is worsening)
-Military actions in Syria (this is worsening, as Israel has been firing missiles)
-USA backs out of Iranian Nuclear Accord (this has just begun)
-Saudi Arabia/OPEC’s desire for stronger oil prices
The following, in italics, comes from a Wall Street Journal free newsletter I receive:
Investors are raising concerns that Washington’s decision to exit the 2015 Iran nuclear deal could destabilize the effort by major oil producers to eliminate global supply and balance the market for crude, reports the Wall Street Journal’s Georgi Kantchev.
Iran is a member of the Organization of the Petroleum Exporting Countries, which together with its external allies including Russia has been spearheading an effort since 2016 to reduce global output by a about 2%.
The oil cartel and its partners are set to meet in June to decide whether they’ll extend the deal beyond this year.
If U.S. sanctions take Iranian oil off the market, leading to further price gains, some signatories may declare their mission accomplished.
“If the reimposition of U.S. sanctions on Iran leads to a reduction in Iran’s oil output and exports, OPEC and its allies could exit the deal at the end of the year or even sooner in order to prevent a supply shortage in the oil market,” said Thomas Pugh, commodities economist at Capital Economics.
Meanwhile, oil prices hit 3½-year highs this week amid expectations that renewed U.S. economic sanctions will squeeze Iran’s oil supply.
So there you have the Iranian aspects, and this writer from Bloomberg.com doesn’t think the market has accurately priced in the Iranian risks yet, and points out that crude oil swap futures are now over $60/bbl all the way through 2022…but do not lose sight of Venezuela. ‘Venezuela’s Brewing Oil Shock May Be Bigger Than Iran’s’ is the headline for this Wall Street Journal piece. We just chatted about Iran. Here is a snippet from the linked item re: Venezuela:
Folks, THESE THINGS MATTER. These are things you need to be aware of, at the least. It’s not enough any more to simply analyze propane inventory fundamentals to try to get a bead on where propane prices may go. Given the incredibly new export capacity that exists in propane, we are dealing with a truly global commodity, and what happens across the globe can absolutely have an impact in your back yard.
Of course, I will help you remain abreast of these important items on a regular basis…but don’t dismiss them and think you don’t need to know about them…because so many of the factors I have listed above are behind pushing propane up $.1100 to $.1700/cpg in a month an a half in the spring…
And if I asked you, ‘would you want to know about something that could move propane prices a dime or more in a month?’, my guess is your answer would be a definitive YES.
OPEC’s meeting in three weeks is going have the whole world’s attention.
CORN PLANTING: The corn planting pace has really picked up the last two weeks, with 34% of the corn getting into the ground. If you take a look at the image below, from Kevin Van Trump, you will see that the through Week 18 pace ahead of just 2014 (29%) and 2013 (12%). Corn planted after May 20th is considered ‘late’, but we’ll check back in on this next week.
WEATHER: My friend’s over at BAMWX.com recently shared their outlook on the weather facing farmers all across the nation for the coming weeks and into the summer. You’re going to see more and more content from BAM in this space, and these guys are pros. If weather extremes (such as a record warm May, possibly followed by a blow torch in June) could impact your business (crop yields, prospects for grain drying, etc), then give this video a watch, linked here. It’s less than 10 minutes long, and I share it with permission from BAM.
If you are short on time, the image below shows the years that comprise the five warmest May’s on record and what the ensuing June’s looked like…HOT.
That’s it for today. Thanks for reading.