Propane inventories drew down 3.3M/bbls for the week ending 12/15/17, according to the EIA report released this morning.
This was the largest weekly propane draw of the season and biggest since a 4.4M/bbl draw from the March 3rd, 2017 report.
National inventories stand at 71.3M/bbls, and the year over year deficit grew by 200,000/bbls to 21.2M/bbls, as we experienced a 3.3M/bbl draw this week of last year.
Next week’s inventory report has the chance to significantly impact the markets, at least in my opinion. Today’s report has pushed things higher, but we have seen a firmer trajectory already this week. If we come anywhere near last year’s 5.6M/bbl draw down for the third week of this December, we might see some considerable strength seep back into the propane markets, as trader concerns over inventories could reignite.
If that last comment is to come to fruition, it will be because of a few things:
1. WEATHER: One of the coldest two-week snaps in years is upon us. Today’s inventory drawdown came in the face of above normal temps for much of the country. Domestic demand was actually down a little bit this week over last week.
As per long standing ideas. Christmas Day GFS idea now coldest since 2000 for nation as a whole New Years Day, since 2010
Entire week tho, since 2000 ( Christmas 2009 was not as cold as 2000) pic.twitter.com/TnuTPJ1yUS
— Joe Bastardi (@BigJoeBastardi) December 20, 2017
2. EXPORTS: The judge and jury of our industry, exports exploded this week over last week, with a 1.202M/bpd number. That’s the fourth highest weekly total on record, by the way. We see the waterborne export data, and as of yesterday, the shipping commitments for the rest of December showed a 1.2M/bpd total…for the second half of December. That’s an average.
IF that verifies, on top of a cold-snap domestic demand period the likes we have not seen in a few years, one cannot rule out some January price volatility.
I HATE being wishy-washy. I also don’t like being wrong and I take a lot of pride in analyzing things to the point where I get a bit obsessive with the process.
The energy industry’s ability to export large volumes of propane and how quickly spot cargoes can come and go are such new factors for everyone, and we are talking incredible volumes that can swing markets in a big way from week to week.
While I still believe everything I wrote last week pursuant to 2018 inventory analysis will play out, today’s export number, export expectations for the rest of this month as well as one of the coldest forecasts we have seen since 2013-2014 means we are not out of the woods just yet for price volatility for this year. HOWEVER…if prices rise too high, too fast, the export trading arb will close again…and exports will fall.
THIS is what feeds our volatility…and it is much more nimble than most people dreamed it could be, considering we are talking about a week over week export increase from 706,000/bpd to 1.202M/bpd just from last week to this week.
Even with last week’s posts leaning towards the bearish side of things, the resilience of exports were never far from my thinking. This, from one of last week’s Propane Buzz posts:
…An enormous wildcard will be propane exports. Will softening United States propane prices lead to stronger American sourced export activity to Northeastern Europe and Asia? If that happens, we could see the export mechanism ramp up which would help to suck down American propane inventories and add a little more intrigue to January and possibly February, especially if winter arrives as has been in the forecast.
The export whipsaw happened, and things look strong there for at least the next two EIA reports…during which time winter will most certainly arrive in a way we have not seen in years.
Hold on to your hats….there is no more comfortable middle for us…it’s one extreme to the next!
Speaking of which, here is MDA’s January and February forecast:
There there is this:
What am I watching very closely? GFS growing more confident of more poleward heat transport in early January. Resultant stretched #PolarVortex would likely support more cross polar flow and therefore #cold temperatures in eastern North America. pic.twitter.com/nCf6Ubydal
— Judah Cohen (@judah47) December 20, 2017
This is very, very important to what will happen the rest of the winter. If the ‘poleward heat transport’ happens…then that is likely going to lay the groundwork for the winter of 2017-2018 to be much, much colder than what we have seen for at least the last three years.
NOTE: I will be out of the office until 3PM central this afternoon, as we have an offsite company outing. I will return at that time and returns calls and emails. Thank you and have as Merry Christmas!