Propane Inventories Continue Downward Movements

The 2016-2017 propane season is officially in the books, with the EIA’s weekly inventory report for the week ending 3/31.

The report showed a rare draw, of 1.2M/bbls and brings the national inventory level down 41.6M/bbls.  This number is a giant departure from where we ended March of 2016, which was with 64.9M/bbls of inventory.  That’s a difference of 23.3M/bbls below where we were a year ago at the same time, which is A HUGE departure.

At this point in time, if we meet the all-time record seasonal inventory build of 53M/bbls, we will get back to 94-95M/bbls of inventory heading into next winter.  We have been at 104M/bbls heading into these past two winters.

I believe it’s relative safe to assume we will not get back to 104M/bbls heading into this next winter.  Now, the biggest question I have, and why I believe the next four to six weeks of inventory reports will be so critical and could set the pricing tone for the rest of the year, is at what rate will our industry be able to build back inventories this spring and summer?

Higher propane prices would actually be helpful over the next months, as that would help to keep more propane in the United States and less of it leaving our shores for export markets.

Here are a few other numbers to ponder:

Exports were at 887,000/bpd this week, off from last week’s 949,000/bpd
Exports were at 643,000/bpd for the same time from one-year ago
Exports have averaged 937,000/bpd the past four weeks
Exports averaged 635,000/bpd for the same four-week time frame one-year ago

Let’s look a bit deeper at the impact exports are having on our industry.

We experienced a 2.1M/bbl inventory BUILD from the same time one-year ago. We had exports of 643,000/bpd on year ago. This year, we had 887,000. That is a difference of 244,000/bpd, or 1.7M/bbls for the entire week. If we had the same export level as one year ago, we would have had a 500,000/build this past week. Instead, it was another draw.

So the rate of export levels the next several weeks is incredibly important, and something you should follow very closely. I will certainly keep you appraised of what I see, and what the tea leaves tell me after we get more data.

But I don’t want to brush past this week’s key takeaways:

-Exports remain robust and well ahead of any level we have ever experienced for this time of year
-We are beginning the ‘inventory build’ season 23.3M/bbls lower than one-year ago

Those two factors, in conjunction with one another, makes April and May much more drama-filled than I can ever recall, because the data they reveal, week by week, pursuant to inventories, could have a big impact on fixed-price contract values for this coming winter, in addition to security of supply on the macro level.

CRUDE OIL: One caveat here is crude oil. If crude slips and dips, propane will have trouble holding its footing, unless the next four or five weeks of builds are 1M/bpd or less. (if that happened, propane prices would skyrocket)

United States crude oil inventory levels are well above the 10-year median range as well as the 10-year maximum range, as hard as that is to believe.

As such, this week’s oil-rally ended after the EIA report showed a build in crude inventories of over 1M/bbls. Crude stockpiles in Cushing, OK are at record levels, over 69M/bbls for the first time ever.

Today’s report of a draw was a bit surprising, as last night’s API’s showed a draw…and the market is now whipsawing back to the downside and there are more put option bets than call option bets among the hedge fund set.

Or, to put it more plainly, there seems to be a great sentiment towards crude’s downside than its upside.  As of this writing, crude had lost nearly all of the gains it had made this morning prior to the EIA report.

Jon Miller

Follow me on twitter @PropaneBuzz

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