Propane Draws 2.1M; March Stronger Demand Than Expected

Propane inventories drew down 2.1M/bbls for the week ending 3/16, according to today’s EIA report.

Exports have been strong as of late, and the drop in American propane values over the past few weeks could be supporting stronger overseas appetites for American C3.  Exports were reported at 1.041M/bpd this past week, which is very strong.  They were listed at 809,000/bpd one week ago.

This draw moves national stocks down to 36.8M/bbls, which is nearly 3M/bbls below the 39.7M/bbl low point of one year ago an the lowest levels seen since we came out of the winter of 2013-2014.

Though I still expect production to be stronger this spring than last, my interest is getting piqued by these strong March draws.

While I don’t think we will wake up one day with trader sentiments turning fearful on inventory concerns for 2018-2019, given the expected strength of production forecast for 2Q into 3Q, at some point, the calculator could show some intriguing scenarios.

As I wrote a few weeks back, there is always fear in the unknown, which fed into propane prices spiking between last March and November, at the hubs.  The hubs began to soften once winter hit, as concern over inventory scarcity evaporated.

So this year, we won’t have those fears.  However, if we exit March at 35M/bbls, that leads to an interesting question.

The all time record seasonal propane build happened a few years ago (2014), when we built 53.5M/bbls low to peak.   If we exit this winter at 35, and built back at a record pace, that would get us to 88.5M/bbls.

As I have mentioned, I don’t expect to see the exponential value increases this summer as we saw a year ago, but I also expect crude oil prices to remain stable to strong.  So while this sort of environment is ripe for propane production, it could also lead to a strong United States propane export market, and a potentially more rapid rate of inventory drawdown in 4Q18.

I am not saying it’s time to be concerned.  I am saying that the inventory build topic grows more and more worth following with each passing March inventory drawdown.

SAUDI MOVES:  The long anticipated IPO of Saudi Arabia owned Aramco is taking another twist.  This, from the Wall Street Journal on Tuesday:

Saudi Arabia is scaling back its ambitions for a public offering for oil giant Aramco, moving ahead with a listing next year solely on the Saudi stock exchange, write the Wall Street Journal’s Summer Said and Maureen Farrell.

Saudi officials said that an international IPO for Aramco has become much more complicated than they initially believed.

Oil prices, around $65 a barrel, have shored up the kingdom’s budget and bought them more time to determine whether an international offering remains a good idea.

The move (or at least, this current talk) to have the IPO take place off one of the world’s major trading hubs (like the New York Stock Exchange) isn’t a gigantic surprise.  Had the Saudi’s done that, the level of transparency required by the American exchange to list the stock always seemed far too invasive for the close-vested empire…and could have potentially opened them up to some 9/11 connected lawsuits or other.

Still, the Saudi’s seem focused on diversifying their economy and will still look to bring in state revenues via stock valuations and dividends as opposed to what the price of crude is doing.  I still anticipate they will push to keep oil priced in the $60-$70/bbl range for the foreseeable future.

Now, if Iran and Russia join league and try to break free from the present OPEC strategy of cutting back on production, all bets will be off the table.

Jon Miller

Follow me on twitter @PropaneBuzz

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