inventory

Propane Stocks Don’t Build; Staggering Inventory Challenge Ahead

The EIA reported neither a build nor draw this past week pursuant to propane inventories, with the reporting period ending April 28th.

That leaves two more reporting days for April. We are presently at a 1.8M/bpd draw for April through 28 of the 30 days, so we will see just the second April inventory draw in recorded history…or at least, which I consider recorded history since our history files date back to 1985.

The other instance of an April draw was in 1990, when inventories drew 1M/bbls. This will likely eclipse that mark by a wide margin, unless the last two days of April saw something anomalous.

Exports dipped to 764,000/bpd this past week, but imports were down and demand was stronger, which led to the flat inventory total.

Let me lay out the weekly, staggering numbers for you.

-Current US propane inventories sit at 39.7M/bbls
-They were at 71.9M/bbls one year ago
-We have 44.8% LESS propane in stock now than we did one year ago
-We have 21 days of supply of propane on hand
-One year ago, we had 40 days of supply on hand
-Two years ago this week, we had 66.5M/bbls of inventory with exports at 314,000/bpd
-Three years ago on the heels of the last great winter, we had 35.2M/bbls of inventory
-Four years ago this week (2013), we had 41M/bbls of inventory with exports at 144,000/bpd
-To repeat, we now have 39.7M/bbls of inventory with exports between 764,000-900,000+/bpd

Math was my least favorite subject, and I have had to work at it to be competent. But even my inferior math instincts tell me that our industry is in some trouble as it relates to building back ample inventories.

We have less inventory on hand at the beginning of May 2017 than we did at the beginning of May 2013, 2015 and 2016. We had 35.2M/bbls beginning May of 2014, on the heels of the last great propane winter which included the most vicious price spike in history on supply fears, and exports were at 314,000/bpd at that time.

To repeat a third time in this post, because this is so important to underscore the severity of our inventory deficiency while at the same time highlighting the different export era we live in, we have 39.7M/bbls of inventory with exports for this last week’s report at 764,000/bbls.

We need to build over 50M/bbls over the next five months to just get our heads over the 90M/bbl mark, and we have only ever seen a build of that size once* in the history of the industry, but that instance comes with an asterisk

That was a build of 53.5M/bbls, which took place between April 1st, 2014 and October 31st, 2014. This was on the heels of the aforementioned winter of 2013-2014. Propane wholesale prices soared to record levels, and every producer of propane on God’s green earth was producing as much propane that summer as could possibly be produced to capture the netback profits which were available…and our export capacity was nowhere near what it is now; we had roughly three times less capacity than what we have right now. So I view 53.5M/bbls a statistical outlier, given those unique circumstances which are not present today.

Here are recent inventory build cycles, with the build number being conveniently displayed beneath the ‘Build’ column:

BuildData

The month of October has been the peak month 9 times out of 20, with September at 8 times out of 20 and November 3 times.

Take a look at the 20, 10 and 5 year averages. We have a 20 year seasonal build average of 39.4M/bbls. The 10 year is surprisingly less at 38.4M/bbls, with the 40 year average at 40.7M/bbls.

Let’s assume this year’s peak will take place in October. That means we have six months to build 50.3M/bbls in order to hit 90M/bbls of inventory, which would be 14M/bbls less than the peak we hit in each of the last two years and would be cause for some concern.

That’s 26 weeks. That equates to averaging 1.93M/bbls worth of builds every week between now and the end of October 2017. In many years, I don’t think that is such as stretch, but the era of propane supply and demand we live in right now is different than any other era that has come before, because of export capacity.

We just drew down roughly 1.8M/bbls of propane in April, the second ever month of April draw, and yet we have to build nearly 2M/bbls per week for the next 26 weeks to get back to being 14M/bbls below where we were entering each of the past two years?

The five-year build average is just under 41M/bbls. If we had a build like that over the next 26 weeks, that would put us around 82M/bbls by the end of October…a trajectory like that could lead to some panic before we ever get to October, and when I say panic, I mean a buying frenzy which would cause prices to rise.

But hey, nothing to see here, right? Crude is weak, and it’s dragging propane around by its coattails so we have nothing to worry about, right?

Until we do.

Jon Miller
Marketing Representative for NGL Supply Wholesale in Tulsa Oklahoma. Follow me on twitter @PropaneBuzz

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