This week’s EIA report showed a 3.4M/bbl build in propane, but the 6.6M/bbl build in crude oil stole the show.
Last night’s API’s showed a 3.5M/bbl in crude when the market was looking for a 2.5M/bbl draw….which sent crude down in after hours trading. Today’s EIA’s, which are more trusted, if you will, doubled-down on the size of the crude build as we can say summer driving season is over and it ended with a pfffft.
Crude oil prices, as of this writing (9:56A Central) are down $2.29, which is below $65/bbl. If crude closes below $65, it will be the first time that has happened since June 7th and just the second time since early April…but we have a few hours to play out on that front.
As one would expect, spot propane values are also off following this report . The last deal done in MTB for August propane was $.9300, while the last Conway deal done was at $.7650. Yesterday’s closing averages were $.9613 & $.7850, respectively.
As it relates to propane, the 3.4M/bbl propane build is what some traders were looking to see. It eases a bit of the tension that had been building over inventory worries, as propane inventories are now pacing ahead of last year’s levels once again after falling behind the last few weeks.
We are now at nearly 70M/bbls with eight more reporting weeks to go before we reach the ‘end’ of the traditional inventory building season. We ended September 2017 just shy of 80M/bbls and unless things get real crazy the next two months, we should surpass those levels.
However, I believe traders would like to see that total closer to 90-95M/bbls due to how strong exports have been. Look at the image above, and you will see that we were at 981,000/bpd on exports this past week. The trading arb is still wide open and we are averaging 300,000/bpd more exports this year than last year at the same time. Propane production is 100,000/bpd higher this year than last year, but that is still 200,000/bbl more on a net basis. We needed this inventory build today.
Propane production has been steady all summer and remained so this week at just under 1.950M/bpd.
GLOBAL ECONOMIC OUTLOOK GROWS MORE DIM
Here were some headlines I found this morning:
Threat of Turkish Economy Contagion in Emerging Markets Deepens Commodities Risk
Slowdowns in China and India Eat Away at Asian Oil Demand
China’s Growth Engine Sputters as it Battles US over Trade
Global Economic Outlook is Darkening
We also have copper at a 13-month low right now, and copper has been a very solid barometer for the health of the global economy, historically speaking. When it’s strong, the economies of the world are in good health…when it’s weak…well….
All in all, pretty bearish headwinds right now, and this was BEFORE the EIA showed a 6.6M/bbl build in WTI crude oil. Its going to be tough for the crude bulls to regain the reigns. WTI long hedge funds position still outnumber shorts 10 to 1, but this number was at 14 to 1 a few weeks back. Will be interesting to see if that gap grows more narrow next week with all of the negative global economic news.
Of course, there are geopolitical factors in play, such as the Iranian Crude Embargo, but India may cut it’s crude imports from Iraq by 50% to secure a waiver from the United States. India is Iran’s second largest crude customer. Where will India make up the crude gap? In June, India’s imports of American sourced crude jumped to a new monthly record of 261,000/bpd.
Global production and demand can fit into a zero-sum vacuum…While Iranian production or exports may drop off, countries like the United States, Russia and Saudi Arabia can make up those volumes. If China stops taking US crude (which they may not do, as US crude seemingly has become too valuable to them), India and other nations step in to fill the void. In some ways, it’s like a kid moving food around on his plate and tells you he has eaten dinner.
Perhaps…PERHAPS…some geopolitical bullish factors are cooling off…PERHAPS some of that risk is getting ‘washed out’ of crude pricing right about now. Time will tell, but these types of three to four cent dips in propane prices are clear ‘buy in the dips’ opportunities for those of you still looking to lock in prices for this winter.
Here is my off the cuff EIA report recap from this morning (just five minutes long)