Propane Draws 2.5M/bbls, Gap to Last Year Widens

Propane inventories drew 2.5M/bbls for the week ending 11/10/17, according to the EIA report released this morning.

National inventories now stand at 74.7M/bbls and are 26.1M/bbls lower than at the same time last year, which saw inventories at a whopping 100.8M/bbls. Here are a few things to consider to put our current inventory number into some context:

-We didn’t get down to this level (74.7M/bbls) until around January 10th of last winter
-This means we hit the 75M/bbl mark 56 days sooner than one year ago
-We have six to eight weeks less inventory on hand now than one year ago
-One year ago next week, we had a 1.9M/bbl BUILD in inventories
-We are expecting another decent draw next week
-Our year over year deficit should top 30M/bbls next week
-We had a 32.2M/bbl year over year deficit peak coming out of this past winter
-More on these points in a bit

The Mt Belvieu OPIS average was $.5113 on 11/14/16. One year later (yesterday) it was $.9725. That’s an increase in over 90% year over year. Given that inventory levels are so much lower heading into the time of year where we need propane the most, higher propane prices are no surprise and this ‘train wreck’ was one that we saw coming back in March of 2017.

That does not matter anymore, because here we are. What matters is where we are going?

Based on the weather forecasts for a cold end to November, and one that could exceed the 30-year Gas Weighted Heating Degree Day average and calls for December that are colder than the 10-year average and near the 30-year averages, the upside risks still see to far outweigh the downside risks for the next 45 days. For me, things look rather bullish through January.

Which brings me to circle back around to some of the bullet points I shared above, specifically, these two:

-Our year over year deficit should top 30M/bbls next week
-We had a 32.2M/bbl year over year deficit peak coming out of this past winter (week ending 4/28/17)

I wrote the following in a blog post back on May 24th, 2016:

1. We will struggle to build back the same 41.2M/bbl summer build level we had in 2016
2. If we have a ‘Hail Mary’ 45M/bbl stock build this year, that puts inventory at 84.7M/bbls
3. That’s not enough inventory to give the industry comfort heading into winter
4. If crude oil strengthens in 2H17, that’s more upward price pressure

A 45M/bbl seasonal build seems incredibly optimistic right now. That would mean we would need to build close to 40M/bbls over a four-month period, June through September. In looking through our history files, I can tell you that has never happened.

We may be pressing matters to expect inventories to build back north of 80M/bbls. As of right now, we need to build 36.3M/bbls over the next four months and 11 days to hit the 80M,/bbl mark and anything less than that with a seven in front of it should create some panic this fall.

With that in mind, chew on this; We’ve never built over 26M/bbls June through September and we’ve topped 20M/bbls worth of builds for that time frame just four times since 1985.

Don’t be lulled into some false sense of security that the inventory shortfall heading into 2017-2018 is no longer a concern…it’s a huge concern, but it’s the middle of May and not enough people are focusing on these things…at least, that is my opinion.

So after six months of propane builds, we are likely to be in the same deficit position as we were in early May, when I was very concerned about where propane inventories would be in the fall. We will not have made up any ground going into the most crucial period for our industry. Exports remain robust and for the time being, we don’t see any reasons for exports to drastically decrease. This winter stands to be much colder than last winter for much of the country east of the Mississippi.

My point? If you still have some buying to do, from NGL or any of your suppliers, you really, really need to finish up your Winter of 17-18 plans.

I will have more on weather tomorrow, as there is a significant difference between the American and European weather model projections. The American sees more cold to open December, while the European sees warmth. The good news is the American has been outperforming the Euro this fall in the 15-day time period.

 

Jon Miller

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

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