Propane inventories drew down 2.5M/bbls this past week, for the period ending 2/16, per the EIA’s weekly report.
National inventory levels now stand at 43.1M/bbls compared to 49.8M/bbls one year ago during the same week. Exports dipped to 779,000/bpd for this reporting week, compared to 1.065M/bpd the previous week. However, demand was up over 100,000/bpd with production off slightly.
Thus far on this demand season, which I view as beginning on October 1st, we have drawn down roughly 36M/bbls of propane. Compare this to 54M/bbls worth of drawdown during the same period one year ago. This is roughly 18M/bbls of difference in year over year inventory.
Where is that difference coming from? This winter was a lot colder than last winter, right?
Let’s examine things from the first EIA reporting week in October through this present week, which is a 20 week period, for both 2016-2017 and 2017-2018.
EXPORTS: 8.4M/bbls LESS product exported this year than last year
PRODUCTION: 21.8M/bbls additional propane production this year than last year
DEMAND: 11.3M/bbls additional demand this year than last year
Add the export total and production totals together, as they represent additional product on the market this year vs last year, then subtract the demand line as that is additional takeaway from last year, and you get 18.9M/bbls of additional product on the market this year than last, which lines up near perfectly to the year over year inventory draw down difference of 18M/bbls I outlined above.
The production levels are likely coming from the Permian Basin, and Bakken crude production right now sits at record levels.
Also, as for this winter being colder than last winter…we have seen domestic demand increase just 5.65% when taking into account the October through present time frames. I would have guessed that number to be much higher than that…but that is not the case.
I suspect we will continue to see higher production levels this spring compared to where they were last year. The export piece will be the key factor to watch as we begin building back inventories for the next propane season. If anything, today’s exercise underscores how domestic demand is fairly low on the totem pole for trying to predict inventory levels and thus fundamental pricing trajectories for propane.
Where extreme cold snaps can send propane prices much higher off-hub and regionally, that doesn’t mean we will see a general lift in values at the hubs…and values at the Mt Belvieu trading hub are going to be drive more by exports and production than by demand.
We are at the point where inventory fears for this winter have come and gone, and that fear factor has been priced out of the markets. That said, spot prices in Mt Belvieu (MTB) are $.1100/cpg higher right now than they were on February 8th. The Conway market continues to fall, as the spread between Conway and MTB has been pushing $.1700/cpg this week. That spread is not nearly as wide in March, which suggests there are some folks dumping February Conway and paring down their positions.
I am mildly interested to see if inventories do get lower than the 39.7M/bbl level we saw at the end of last April. I say ‘mildly’ because I just don’t get the sense that the markets are going to behave the way they did last spring and summer, when that inventory level created some fear in the marketplace. As I have said repeatedly, there is fear in the unknown…and if we have a similar inventory level at a similar time this year compared to last year, there is no longer the unknown quotient to take into account because we have literally just ‘been there, done that’.
I discus this in far greater detail in a video I recorded earlier this week, and I begin to discuss the fundamental drivers I see shaping up for this coming supply season. If you missed that video, here it is.