(CLICK HERE to look at today’s weather post, with the gang at BAMWx.com is talking about potentially the warmest June on record and drawing some comparison’s to the summer of 2012. For those of you in the Ag sector, today’s video from BAM is something you should watch.)
PROPANE INVENTORIES: Propane stocks showed another strong build this past week as we saw a 3.7M/bbl build. That’s nearly 8M/bbls of inventory added over the past two reports as we now stand at 50.8M/bbls of inventory nationally and are just 1.9% behind last year’s pace…and I think we will overtake that pace within the next month.
Propane production continues to be very robust, clocking in at 1.945M/bpd, nearly 100,000/bpd more than we experienced one year ago. Exports were listed at 715,000/bpd this week, off from last week’s 890,000/bpd.
Nothing in this report surprised me, as I expected to see another healthy build north of 3M/bbls. We’ll have to wait and see what the trading community thinks of this number, if anything.
I spend some time breaking down the internals of the report at the video below, and also discussing some of what I have written lower in this post pursuant to propane prices:
PROPANE PRICE MOVEMENTS: Propane continues it’s mostly range bound march through late spring and early summer, with yesterday’s daily averages in Mt Belvieu and Conway being off just a half cent or so from Monday’s close.
Take a look at the chart below, which shows an approximation of Mt Belvieu and Conway daily averages since February second. Notice the rectangle in the upper right, which begins on May 8th, through yesterday:
While there has been ‘some’ movement since May 8th, here is where we began this period and where we were yesterday:
Mt Belvieu: $.8800
Here is where we were yesterday:
Mt Belvieu: $.8887
That’s a lot of sideways. Conway did peak over $.8000 and Mt Belvieu over $.9700 back on May 17th, but we’ve seen prices retreat off of those high points.
FORWARD CURVE: Financial propane markets are showing an interesting forward pricing curve for propane right now and shed a decent idea on values you can purchase.
The spread between current month to December Mt Belvieu is less than one-half cent. This gives traders zero incentives to buy and store front month barrels, instead, purchasing product in the future months to meet future needs. This is a very flat curve and growing flatter, which can be a bit of a bearish signal. However, we haven’t seen a bottom drop out of the markets yet and crude oil, along with a robust propane export arb, could float Mt Belvieu for longer.
Conway is a different story. The spread between current month to December Conway is is over $.1100/cpg. Purchasing front months and rolling them to the winter demand season is an option for traders, but how plentiful are the barrels to be bought?
One can sit and examine prices of propane, and what it’s traded at on a given day to try and make bearish or bullish determinations. Another factor that is just as important as price is availability. If a trader wanted to lean into the markets and pick up a few hundred thousand barrels, could he/she do it, or are barrels in tight hands where you can only add 25,000/bbls to 50,000/bbls here or there?
I’m not so sure traders could get on large volumes of Conway barrels right now if they wanted to. There is an enormous spread (over $.2000/cpg) between Conway and Mt Belvieu right now, and from a pure pricing perspective Conway looks quite bearish. However, if you struggle to be able to lean in hard into the marketplace and add large volumes if that was your strategy, that doesn’t seem as bearish as the pricing would indicate.
As I wrote yesterday, which still applies today:
“I am still of a mind for Mt Belvieu priced clients to lock in contract prices only on what you are committing to a fixed price at for your customers. For those of you in markets where you use indexes to secure your supply, and then fix a price at a later date, you should have already committed to those gallons by now. If not, I would do so as soon as possible. For Conway readers, I would suggest a similar notion; if you are committing a fixed price to your customers, then cover those gallons with fixed priced contracts, locking in your margins. For Conway readers who have solid summer fill plans, values are very favorable for you to initiate these programs at the present time (given how Conway values rise sharply in each future month).”