The EIA Data for the week ending February 23rd, 2018 showed a draw on stocks of just 400,000/bbls. This was in line with a 500,000/bbl draw one year ago for the same week, and unfortunately, February 2018 temperatures were also inline with February of 2017 temperatures. This, from MDA today:
Warmest ever February for many areas of the south? Top 5 warmest February in parts of the East and Northeast? When the February forecast from MDA and several others was supposed to look like this?
I cite BAMWX.com and MDA here because these two services have performed better than any of the other services I have followed over the past two to three years. These February forecasts were made on January 30th or 31st, or right on the doorstep of February. BAM at least saw the warmth in the Southest. So even the best can struggle sometimes, which underscores a precarious aspect of our business…which is the most important demand factor to the retail propane industry.
National inventory levels now sit at 42.7M/bbls, and as I mentioned to a coworker yesterday, I don’t know that we will get to below 40M/bbls. We probably will, but just barely. Either way, this is a non-factor right now.
Something I forgot to add in last week’s inventory report was that Conway inventory levels as of February 16th were sitting at 10.6M/bbls. If you would have told me back in October that by the time we got to mid-February that Conway inventories would be at that number, I would have guessed Conway prices would have been MUCH higher than where we are right now.
The propane markets have been fascinating to me the past 12 months. Last March, I was writing about how some pricing predictions were easier to make than others, and the fundamentals were telling me we would see a strong rise in propane prices in 2017 from where we were in late March, 2017. That happened, as prices nearly doubled at the hubs between March 2017 and November 2017.
At that point, given our inventory levels, history and historically based fundamental analysis suggested some wild times could be ahead at the trading hubs Then came January, which started out with one of the coldest week’s in history, but a funny thing happened over the ensuing ten days; the hubs just didn’t behave in ways that you’d say were historically predictable. While some off-hub locations did see those expected price spikes, the hubs did not…and as I have written before, the export factor is a big one. That, and we saw incredibly strong production Q417 and that has carried over into 1Q18 with no signs of slowing down.
So here we are.
Back to this week’s report…the EIA is reporting that domestic demand for propane fell from 1.651M/bpd last week to 1.051M/bpd this week. That’s an incredibly low number for this time of year; we were at 1.281M/bpd one year ago the same week, which in and of itself was a very low number. There were two weeks this past summer where domestic demand was higher than the week ending February 23rd, 2018. Just incredible warmth in February for the second year in a row.
Here is what MDA is projecting for March:
This past week in the trading world saw some short-squeezes taking place in Mt Belvieu, but those seem to be over and the floor has dropped out in front month Mt Belvieu pricing and the spread between MTB and Conway has come in quite a bit, down to a still robust 10 to 12 cent spread, but off from the insane 21 to 23 cent spread we saw earlier in the month.
There are a number of things over the past few months that have left traders and marketers scratching their heads. Nobody likes it when things are unpredictable, but we are seemingly experiencing ‘new normals’ with the passing of each month.