Let me start this missive with the most recent propane inventory numbers…then I will follow-up with some of my thoughts..which will include a chart for monthly average propane prices since 1998:
Propane inventories continue to build, increasing by 2.5 million this week for a current total of 71 million, as reported by the Energy Information Administration as of 5/15/15. Inventory is 31.1 million above 2014’s inventory level at this time and 22.9 million above the 5-year average of 48.1 million.
Regional inventories all increased with the largest build again in the Gulf as product continues to move south. Midwest up 100,000 to 18.2 million; Gulf up 2.2 million to 46.9 million; East up 200,000 to 3.5 million; and West up 100,000 to 2.5 million.
Historical Averages: Midwest is 4.7 million above last year’s inventory level and is 2.3 million above the 5-year average of 15.9 million. Gulf Coast inventory is 24.9 million above last year and 19.6 million above the 5-year average of 27.3 million. East Coast is up 500,000 from last year and is up 200,000 from the 5-year average of 3.3 million.
Propane imports were up 3,000 bpd to 75,000 bpd. East Coast down 3,000 to 26,000; Midwest was up 11,000 to 40,000; Gulf was flat at zero bpd and West down 6,000 to 9,000. Propane exports were flat from the last 3 weeks at 470,000 bpd.
Other Inventory Numbers:
Crude Down: -2.4 mm to 1,173.4
Motor Gas Down: -2.8 mm to 223.9
Distillates Down: -0.5 mm to 127.7
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JON’S THOUGHTS: Inventories on the whole are at unprecedented levels for this time of year. What I find a tad interesting, aside from the colossus macro number, is the shrinking gap between current Conway inventory vs the Five Year Average.
Two weeks ago, we were 3.7M above the five-year average. Last week we were 2.9M above the five-year average. This week we are 2.3M above the five-year average after another small, 100K build. As of this writing, Mt Belvieu current month propane is still $.0400 to $.0425 more costly than Conway, so barrels will continue to flow south to Mt Belvieu and I expect another small build, if any build, next week and the current Conway storage numbers compared to five-year averages will keep dropping.
At some point, this COULD put some upward price pressure on Conway, or rather the differential between the two primary propane trading hubs will narrow.
That said, I am not predicting a price spike…although 4th quarter propane in Conway and Mt Belvieu are within a penny of one another.
There really aren’t any bulls on the horizon for propane or crude. While propane prices are being propped up right now by crude oil, they still continue to fall. Conway is in the upper $.3000’s right now, levels not seen since 2002. See the chart below, which is a monthly OPIS average for propane dating back to the late 1990’s:
I apologize for the small type, but I wanted to show the entire snapshot. Mt Belvieu prices are on top with Conway on the bottom.
Technical traders are saying Crude Oil’s rally is over, while this article discusses the upcoming OPEC meeting and how there are no indicators that the Saudi’s will back off production. Goldman Sachs has set a $45/bbl price target for October 2015 and the same organization has a five-year crude target below $50/bbl on American based WTI.
Of course, Venezuela and other countries would like to see crude oil at $100/bbl, but the Saudi’s just don’t seem to be willing to give up market share…something that has and will happen with crude at such a level.
THE TAKEAWAY: I remain bearish on crude and propane. I remain a fan of cost averaging small bites to balance out your fixed pricing needs this year. THIS SAID, I will have a follow-up post later today related to a long-term weather harbinger that points to a solid demand season ahead for us all.