Propane Draws 1.2 As Impressive March Demand Continues

Propane inventories drew down 1.2M/bbls for the week ending 3/23, according to the EIA report released Wednesday morning.

Exports dropped off from 1.041M/bpd to 886,000/bpd, but year over year propane inventory levels as well as our overall inventory level at this time are strong pursuant to demand.

National stocks stand at 35.6M/bbls, which is 7.2M/bbls lower than where they were one year ago this week (42.8M/bbls).

The inventory low for 2017 was 39.7M/bbls, which was reached at the end of February, 2017.  We are now 4.1M/bbls below last year’s low, and the next two weeks look favorable for domestic propane demand.

Here is the April outlook from Radiant Solutions, formerly MDA;

If this forecast verifies, it will be over 100 GWHDD’s colder than last April, as well as being slightly colder than the 30-year average.

No, a colder April doesn’t make up for the blow torch that was February, but the colder temps on the back half of March and what appears to be in the offing for the first half of April is something we will take.

If this forecast verifies, we could continue to see inventories draw down between 1M to 1.5M/bbls per month on average the next three or four weeks, something I didn’t expect to see as we opened March with mowing lawns and opening swimming pools on our minds.

Back in January, I was thinking we could get down to 30M to 32M/bbls of inventory by the time this winter ended. However, I wasn’t betting on that happening after the warmth of February, and sitting here looking at the inventory date this late into March and feeling confident that the next three weeks will show inventory draws, we could definitely breach those levels.

If anything, this could offer some near-term support for propane prices, speaking specifically to a halt in the fall in outmonth values.

Let’s say we end this winter at 30M/bbls of national inventory. The largest ever low to high stock build for any year took place in the Spring, Summer and Fall of 2014, where we built 53.5M/bbls of inventory. If we match that record level build this spring and summer, from a 30M/bbl starting point, that gets us to 83.5M/bbls by the end of September 2018.

We peaked at 82.3M/bbls during the reporting week of September 9th, 2017, so we could be sitting in a near identical inventory position come October 2018.

As I have written before in this space, since we have already lived through similar inventory circumstances one year ago, I don’t anticipate there being the same sort of inventory concerns this year that we experienced one year ago, meaning I don’t see an exponential rise in propane prices from spring to fall 2018 as we had in 2017.

However, these numbers are perhaps intriguing enough to create a bit of a floor in outmonth propane values. Mt Belvieu propane is now 53% the value of crude oil, while Conway propane is now 44% the value of crude oil.

This past winter, those values topped the 70% threshold in Mt Belvieu and over 60% in Conway.

Right now, 4th quarter propane at Mt Belvieu is valued at roughly 53% of crude oil, while Conway is running at just under 50%.

Another aspect to consider is propane truly operates in a global market now. Asian propane stocks are strong in that they have ample supply. There have been a few cargo cancellations in recent days and weeks, so exports could fall off a bit.

That said, I could see a scenario where outmonth propane values don’t fall as far as some folks might think, whereas spot market (in month) values could grow softer. This would be a market that is in Contango, which is a more bearish signal.

Do I think winter contracting values will be lower than where they are right now for fixed prices? I do. However, having spoken with a number of dealers the past several weeks, some of you think there is going to be a dime drop in the outmonths in the coming weeks. I just don’t see that happening, and the propane to crude ratios are supportive of there being a firming up of the outmonth propane floor…wherever that may be.

Jon Miller

Follow me on twitter @PropaneBuzz

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