We’ve had a great grain drying ‘season’ in the upper Midwest. So much so that some folks are looking to reload on some winter contracts because they’ve chewed into some of the gallons they set aside for winter. That said, some folks are having a bit of ‘indigestion’ as it relates to thinking of reloading at numbers north of $1.30.
Would I have the willies buying gas north of $1.30, in early November? Well, it’s not something anyone would LIKE to do. That said, there are some fundamentals which can ease the pain, with the first and foremost being inventory levels. This, from this week’s propane inventory report:
Propane inventories experienced a draw for the third straight week, dropping by 2.7 million to 62.1 million in the week ending 11/1/13, as reported by the Energy Information Administration. That’s 11.5 million below last year’s inventory level at this time and 3.5 million below the 5-year average of 65.6 million. Midwest dropped the most with a 2.1 million draw to 20.6 million, in reaction to huge demands for propane for seasonal crop drying. Gulf dropped 400,000 to 33.6 million, East dropped 200,000 to 4.9 million and West remained flat at 3 million. Historical Averages: Mid-Con is down 6.9 million from this time last year and is down 5.6 million from the 5-year average of 26.2 million
Focus on the line that the Midwest is at 20.6 million gallons.
20.6 million is a low number for inventories to be in the Midwest in October. To whit, here are the inventory levels in the Midwest for the past five years (click on image to see larger size):
Focus in on the November line and then pan right, keeping in mind that just one week into the month we are now at 20.6 million in the Midwest. That’s lower than any of the previous Novembers listed, including November of 2009…turn your gaze on the 2009 column, November and December then go up to Jan, Feb and March of the 2010 column heading. This would have been the grain drying year of 2009 into the winter of 2009-2010, the last time we saw drying demand anything like what we’ve experienced this year so far. Inventories dropped from 28.7 in October to 20.7 in December and then to 13.4 in January. Those are big time drops, over 15 million in three months.
We saw a 2.1 million draw last week and my guess is we are going to see another draw in the Midwest of 1.5 or more when inventory reports are released this coming Wednesday, pushing November inventory levels below 20 million with over half the month to go, something you won’t see on the chart because it hasn’t happened in at least five years.
Now, juxtapose those numbers with the price run up from late 2009 in to early 2010:
This is one of those ‘I’m not sayin, I’m just sayin’ sort of things, or ‘past results are not indicative of future performance’…but you can’t ignore history, either.
On top of next week’s anticipated bullish inventory report, we’ll be receiving a shot of cold air over much of the eastern two-thirds of the nation. From Minnesota to Iowa, to Illinois, Indiana and Missouri, we’ll see some lows in the high 20’s to high teens beginning the early part of next week and extending through midweek. We may see upper 20’s for overnight lows in Atlanta next week.
THOSE would be the bullish factors I would analyze when thinking of whether or not to reload a bit at these prices.
On the bearish side, we have a crude oil market that is soft and not much strength in sight, however it’s safe to say propane is detached from crude right now. Why do I say that? Crude oil has dropped over $10/bbl the last few weeks and propane is at or near its highs for the year.
In late 2009 and into 2010, Crude Oil had stabilized from its insane ride it took 2008 into 2009, which I am sure you remember quite well. It was $75.77 in October of 2009 and traded as high as $81.25 in March of 2010.
What was the price of propane during those months? The image above show you, or you can see it here:
October 2009: $98.63
November 2009: $1.08
December 2009: $1.20
January 2010: $1.31
February 2010: $1.29
Again, these prices were primarily the result of tight supplies in propane, as crude was trading in a seven-dollar range all winter and one that was nearly $20/bbl lower then that it is now.
If you have an itch you want to scratch as it relates to feeling a bit short, I don’t think $1.31-ish in the Midwest is going to sink you because I just don’t see things falling out of bed over the next 60 days. In fact, if we have a ‘normal’ winter (which we haven’t had for some time), things could get downright chaotic in the Midwest.
Last thing; starting January 1st, the Southern Hills Pipleine will be shipping 50,000 barrels per day of propane out of the Conway market to Belvieu to be exported. That’s just to start. The capacity to do such things has increased, and this is the name of the pipeline that is going to do it.
We’re at scary inventory levels for this time of year…grain drying isn’t over in some areas and we have a near guaranteed draw coming up on Wednesday in the Midcon…and we’re getting closer to winter with a cold snap on the way.
While I can’t guarantee where prices will be, all I can do is analyze the data that is before us. There’s enough there to make me comfortable owning gas in the low $1.30’s if I have a plan to have it lifted within the next 90 to 120 days.