Good morning from the Rocky Mountains!
I sent a note out to clients last Friday before leaving on vacation, with a few predictions for the coming week that I would be out of the office (which is this week):
-Prices will remain strong, and move higher, barring some unforeseen drop off in propane exports
-Propane exports will be very strong again in this week’s report
-I don’t expect much of a build in propane inventories, and actually think there is better chance for a draw
-If there is a build, I would suspect it would be less than 500,000/bbls
-I still believe there is a decent chance that we have witnessed the inventory high for 2017, as I wrote about two weeks ago
-Next week is a busy week in the industry, as a lot of retailers are rushing to build as much allocation as possible for the upcoming winter
-That being the case, I don’t expect there to be much spot market weakness
Check, check, checkity check-check.
Propane inventories DREW 2.4M/bbls this past week, dropping inventory levels down to 78.4M/bbls with one more inventory report to go for September. Inventories hit 82.2M/bbls two weeks ago, which as I wrote at the time, may wind up being the high point for inventories for the 2017 summer build season.
Exports were very strong this week, showing an average of 1.018M/bpd. Exports are likely to stay strong for next weeks report as well, as we continue to play catch up from Hurricane Harvey and how the exports were shut in for over a week, backing things up. However, those exports were going to go, and this is part of the reason why we are seeing such large quantities leave at this time.
The outlook for propane remains very, very bullish. Unless something unforeseeable pops up that turns us away from this bullish fundamental path, I believe prices will continue to move up, both on the spot market and for winter contracts.
One of the hardest things to do in this industry is to lock in prices on product after the market has already experienced a significant price run up. You feel like you missed the boat, and just decide not to do anything.
In this present set of circumstances, in this present market and with these present fundamental supply and demand factors being what they are, I would still feel confident in what I am buying today will help protect by business and margins this winter, on flat-priced billing contracts for winter usage.
I think we will see another draw next week, or at best, a very small build.
Here’s a prediction for this year that I will probably get wrong; I thought we’d build inventory levels to somewhere between 84M/bbls to 86M/bbls. It seemed as though we were heading for that market before Hurricane Harvey hit, and therefore took a good deal of production offline. That production can’t be made up, while the exports that were knocked offline are being made up as we speak.
That said, I just don’t see us getting to that 84M-86M/bbl level right now. So, I was wrong.
Unfortunately, the inventory levels we are at right now and will head into winter with, will keep the markets more jittery than a long-tailed cat in a room full of rocking chairs. Day to day price volatility is going to be a big story for this coming home heating season.