Propane inventories drew 6.3M/bpd for the week ending January 5th, 2018, according to today’s EIA Report. That is the third biggest weekly draw in EIA reporting history, but it fell on the lower side of the expected 5M to 10M/bbl range many traders were looking for.
It certainly doesn’t look like it contains any corrections from last week’s underwhelming EIA numbers, and I am not all that convinced the demand numbers of this report make a ton of sense, either.
-Exports were nearly doubled from last week, at 1.034M/bpd compared to 534,000/bpd
-Production was down 100,000/bpd
-Demand was up 200,000/bpd, from 1.691M last week to 1.892M this week
I was expecting to see a demand number north of 2.0M this week, but that did not happen.
It’s hard to dismiss the third biggest weekly draw in history as insignificant, but in the minutes following the report, the trading market had not reacted one way or another…which is their way of saying ‘MEH’.
You may recall my blog from yesterday where I felt today’s report was going to provide some direction and definition for the rest of the year…but somehow, we have another report that doesn’t give you comfort either way, or at least, it has not manifested clarity in the trading community to this point.
On the macro, we are now sitting at 61.7M/bbls of inventory nationally. We didn’t hit this number until the last day of January last year. A year-over-year comparison for the same week saw stocks sitting at 79.7M/bbls one year ago We are now 18M/bbls behind last year’s pace.
I feel as though the inventory reports, or the data they have been showing us, are one of the more frustrating ‘carrot on a stick’ exercises we have experienced in a good long while. Just when we thought we’d see something that would instill confidence as to how the rest of this winter would play out, the ambiguity continues, at least for another day, or week.
I don’t know about you, but I am not a fan of that. Still, the fundamentals are my primary compass, and when I see wishy-washy or ambiguity, my mind fears the downside.
One year ago next week, we experienced the largest weekly draw in history of 7.4M/bbls. I would suspect we would see another draw in the neighborhood of what we just went through, which would take inventories down to around 55M/bbls with roughly one-third of January’s reporting in the books.
My gut tells me that, barring some radical fudging of the numbers, the trading community is going to bet we will have enough propane, on the macro, to make it through the winter. Thus, we will not see price spikes anywhere near what we experienced the last time things were this cold for this long, which was January of 2014, at the trading hubs. We may see things soften.
But there is a good deal of pain taking place ‘off hub’. For those not familiar with these terms, the hubs are Mt Belvieu and Conway, which are the foundations for most propane contracting in the United States. Off hub locations are production facilities or gas plants, whose gas is priced based on Conway or Mt Belvieu, but influenced by local supply & demand flows and weather challenges. These areas can see their prices lower than the hubs (in warm years) or see their prices much higher than the hubs, in years like this.
We are experiencing the latter in many places East of the Mississippi and north of the Mason-Dixon line at the present…and frankly, I think we will see things worsen before they get better over the next week at the least.
TOMORROW ON THE BUZZ: A weather focused Propane Buzz that will discuss what the models are showing for the rest of January and into February.