Yesterday’s EIA report showed propane inventories to be at 40.5M/bbls nationally. Here is where we were for the same reporting week in each of the past seven years:
We are at the third lowest inventory level for this time of year among the past seven years, and just barely above the 2017 level. Let’s take a closer look at 2017, just because it’s a similar inventory level and it’s on the outside edge of being somewhat comparable to current times relative to production and exports….even though we are still in a different world right now relative to those two areas.
On April 21st of 2017, Conway was at .5981 with TET at .6475. WTI was at $49.62 and Conway was trading at 50.63% and TET was at 54.81% Yesterday, Conway closed with an average of roughly $.6900 and TET was roughly $.7275, with WTI at $61.35. Conway is at 47.24% the value of WTI with TET 49.89% the value of WTI.
When looking at the propane values to crude oil in each instance, things are not all that far off; we were just in a lower cost crude environment in 2017 than we are now.
In 2017, inventories built back to a high of 82.3M/bbls on September 9th, 2017. Propane’s daily averages for September 8th, 2017 (a Friday) were $.7888 in Conway and $.8356 in TET, with WTI crude closing at 47.48. So at that time, Conway propane was 69.7% the value of crude oil and TET was 73.92% the value of crude oil. Propane had detached from crude oil during that summer, possibly due to inventory concerns.
Some current inventory projections I have seen for this coming summer and fall show propane hitting around 85M/bbls. Obviously, this is not a firm number as it’s just a projection, and we are in a drastically different export environment right now than we were in 2017, but we are also in a drastically different production environment, too. Ultimately, global trading economics will have the greatest ‘say’ relative to how quickly or significantly we build back inventories.
If trading economics remain favorable for United States produced propane to go overseas, that’s what will happen. And if that happens, we will be hard pressed to build back inventories to levels the the marketplace will feel comfortable with, and that could put upward price pressure on propane values. Conversely, if trading economics become unfavorable, then we would see larger inventory builds and less pressure on propane prices.
What we know for sure is that we start the 2021 inventory building season at lower than normal levels and levels not seen for several years. April of 2018 saw inventory levels lower than where we are now and propane values lived in the $.6000’s through the $.8000’s that year. This is the time of year where retailers are trying to decide when to pull the trigger on fixed price values for next winter. While history is not always a guide, it can serve as a touchstone to help us along the way.