Propane Builds, Crude Draws

Propane inventories added another 1.7M/bbls to their national stockpiles, a build that is withing the range of seasonal norms. Last year, inventories built 300,000/bbls this week, which was a very small number. We experienced our own small build one week ago, at just 100,000/bbls.

The reason for this week’s build compared to last week’s total was demand for propane was off nearly 300,000/bpd. Exports were stronger, reported at 827,000/bpd this week vs 768,000/bpd last week.

National inventory levels now stand at 67.6M/bbls vs 89.9M/bbls one year ago at this time. That’s a difference of 22.2M/bbls:

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

On July 21st, the OPIS average at Mt Belvieu was $.66125. Yesterday, the OPIS average was $.73125. That’s a seven-cent rise in the dead of summer, when demand for propane is at its lowest point of hte year. We experienced a $.1300/cpg rise since July 1st.

I have been writing about my concerns over low inventory levels dating back to February, when I began to believe we’d dip below 40M/bbls of inventory coming out of last winter. We did dip below that mark, and we also had a draw on inventories in April for just the second time since 1985, which is as far back as my records go.

A rise in propane prices is not the surprising thing…determining the ‘when’ is more of the challenge, and the fact that such a rise has occurred in the dead of summer, before any possible grain drying demand and before the combines are even in the field is something to take note of.

I see more and more weather outlets discussing an early frost event this year. This morning, BAMWx talked about this very thing and had this graphic:


An then this…

Michael Clark followed up that tweet with these words: “It should be obvious at this rate earlier than normal risks for frost are on the table.”

This next map is a 2 meter model run from the CFS model…and while I am not saying run to the bank with this, as I remain a bit reticent to go all in on modeling after last year’s performance, these ‘ideas’ if you will, are out there. This is for October:

I have not seen anyone calling for front to back cold without any more warm ups…the latter half of August and the latter half of September seem to be the bigger risks for warmth across the northern tier of the country…but the next two weeks look very cold relative to normal, and the first six to ten days of September is where the early frosts could come.

This is a fascinating pattern for the summer, to be sure.

CRUDE OIL: Crude showed a 1.5M/bbl build, and the black stuff is slightly higher than its open today, yet just under a dollar off from the Monday trading highs where the front month WTI topped $50/bbl…since the forward curve has been very flat, a part of me wonders if some shale producers layered in some hedges out the curve with those values.

Propane prices remain firm and they even rose yesterday in the face of a significant drop in crude prices. The front month to back month spread in propane at the Mt Belvieu hub is becoming more and more backwardated, with spot barrels carrying a premium over the outmonths, or at the least being priced at a level near enough to the outmonths to where it makes more sense to buy the outmonths and not carry spot barrels forward in storage.

These are bullish signals…and you need to keep these things in mind if you are still short.

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

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