Propane inventories drew 2M/bbls this past week, the largest week to week draw we have seen since March 13th of 2018 as the below normal temperatures much of the nation has been experiencing for the past several weeks finally shows up….or was it exports finally kicking in to expected levels?
The Gulf Coast at a 1M/bbl draw with Conway drawing just 200,000/bbls, as exports spiked to 1.139M/bpd, nearly doubling last week’s figure of 668,000/bpd. Given that domestic demand was shown to be off by around 300,000/bpd and production was up slightly, you can attribute this draw mostly to exports.
Propane values are down again today when compared to yesterday’s closing averages
Yesterday’s closing averages
Conway: $.6575 (-$.0375)
MTB: $.7425 (-$.0381)
WTI Crude: $53.43 (-$3.33)
Propane to WTI Crude
Conway: 51.68% (formerly 51.43%)
MTB: 58.37% (formerly 57.76%)
Crude oil inventories grew 4.9M/bbls, and the EIA report was in direct contrast to last night’s API’s which showed a crude draw north of 1M/bbls.
Take a look at the following chart from John Kemp, accompanied by his comment: US Crude Oil stocks are rising much faster than normal at this time of year, narrowing the deficit to 2017 and increasing the surplus to the 10-year average:
HEADLINE: Wall Street Speeds Up Oil’s Plunge. “For the second time in a week, Wall Street banks accelerated an oil plunge as they covered exposure to producers’ hedges. Oil tumbled below $53 a barrel for the first time in a year on Tuesday, at one point slumping more than 7 percent in London and New York. The selloff — just like the previous Tuesday — was exacerbated by banks selling futures to rebalance their positions as prices fell, said people active in the market who are familiar with the matter. As put options that private producers and sovereign entities such as Mexico bought from banks come close to paying off, the banks exposed to so-called “negative gamma” have to sell more and more contracts to avoid losses. A number of U.S. producers also looked to lock in gains from profitable 2019 production hedges placed earlier this year and last year, the people said.”
So we’re not talking about fundamentals driving the recent crude oil selloffs…this is a ramification of the greater ‘financialization’ of the energy markets, where big players are involved in paper hedging and how their moves can wreak a lot of unexpected havoc. This is why I run the regular ‘Follow the Money Monday’ series each week, to evaluate where the banks are putting their energy investments. As I wrote this past Monday, the ratio of long to short positions was at their lowest level in over a year…and it’s getting lower there. At some point, you wonder about a legitimate opportunity for the banks to step back in and reload…but the ongoing US-China trade war and IMF concerns over flagging global demand in 2019 are a shadow hanging over that notion.
As I remind my subscribers often, what happens in crude is going to impact your propane prices…the correlation between Mt Belvieu propane pricing and WTI crude for 2018 has been very strong.
INTERESTING ASIDE: First, I want to remind you that this blog is non-political, in that politics are only discussed relative to potential impacts on energy prices. I do not, nor will not provide personal political opinions here and the following should be viewed as me simply presenting some interesting goings on and opinions of others who follow the shims of the energy industry for a living.
I had hinted at a similar notion a few weeks back, but respected Reuters Energy analyst John Kemp sent out an interesting theory this morning via his twitter account. It plays off of President Trump’s tweet from this morning that reads: “Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower!”
Here is what Kemp wrote in response to that:
“THE DEAL: President Trump agrees to overlook the Saudi government’s role in the Khashoggi killing but in return expects Saudi Arabia to keep oil prices much lower than before. KHASHOGGI’s killing inside the Saudi consulate in Istanbul has given the United States leverage over the Saudi government and by extension OPEC+ oil policy. Oil traders certainly see it that way. Khashoggi was killed on Oct 2. Oil prices peaked on Oct 3. And so does the White House. WHITE HOUSE will expect Saudi Arabia to ensure oil prices do not spike again in the months ahead in exchange for continued support on Khashoggi. President Trump has sent a clear message to the Kingdon of Saudi Arabia and OPEC+ on what he wants re: oil market management strategy and he is not known for patience.”
Keep in mind this is just Kemp’s opinion…also keep in mind that political leaders and heads of monarchies have used leverage like this in the past and will in the future.
We’re talking game of thrones stuff here…schemes within schemes and international political intrigue, none of which would be surprising if it all turned out to be true. The American intelligence community believes theSaudi Arabian Crown Prince is complicit in the ‘ordering’ of the murder of dissident journalist Jamal Khashoggi. Here is what President Trump had to say on this matter yesterday, the emphasis coming from Bloomberg Energy Correspondent Javier Blas:
Is it far fetched to believe the Saudi’s may do some stepping and fetching for President Trump in light of his rather sympathetic position, in their favor, over the murder of the aforementioned journalist? No, it’s not. Could this speculation be a distortion of reality? Absolutely. Again, none of this is about the drama. With all due respect to the family of the deceased, our focus in this space is what this could mean for energy prices.
I will be very surprised if Saudi Arabia doesn’t make some steep production cuts at their December 6th OPEC+ meeting. Russia has hinted in recent weeks that they are not interested in cutting production….so we could see the Saudi’s bearing the brunt of market share losses.
This is all quite fascinating, and it all has an impact in your back yard, visa vi crude oil values and possible impacts on propane. I’d rather not have to spend time on such drama, but to ignore it would be irresponsible.
WEATHER: The next two weeks look to keep with the mostly below normal temperature anomalies. There are some interesting goings on out into Weeks Three and Four that I sent to subscribers this morning, courtesy of BAMWx.com, our meteorological partners.
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