The Propane Buzz Report….or PBR for short…will be a regular compilation of items I believe are worth noting in the world of energy that could have an impact on propane. Most everything I write or talk about with the Propane Buzz will have been run through this question filter: Is this something that could have an impact on propane at some point in time?
— Brian Wingfield (@bwingfield) June 5, 2018
That’s a pretty significant headline. From the article:
While U.S. lawmakers have habitually criticized the Organization of Petroleum Exporting Countries at times of high oil prices, and the government has on occasion encouraged the cartel to pump more, it’s unusual for Washington to ask for a specific output hike, the same people said, asking not to be named discussing private conversations. It’s not clear precisely how the request was communicated.
I began in energy in 1996, and I would agree that President Trump’s communications/requests with OPEC on oil production seem a bit unique…but perhaps only in that he has been public about it, dating back to this tweet he sent on April 20th:
Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!
— Donald J. Trump (@realDonaldTrump) April 20, 2018
I strongly suspect that communications like this, or at least, their nature, take place behind closed doors and via diplomatic channels on a regular basis and have for decades.
Regardless, the heart of the article and the Saudi’s seeming acquiescence to the President’s public ‘request’ are worth noting. The Saudi government is being led by Crown Prince Mohammed bin Salman (MBS), a young and brazen leader who is effecting social changes at a rapid pace and is attempted to lessen the control of the Kingdom’s hardline conservative ways. This is just my take from a long way away, but ‘MBS’ seems cut from a different cloth and more willing to ‘play ball’ on the geopolitical front in order to maneuver his kingdom to where he wants it, which is to lessen its reliance on oil.
I don’t believe a capitulation like this happens without some level of ‘quid pro quo’ offering from the United States, and Russia is all too eager to increase crude oil production. It’s also a bit of an interventionist ‘policy’ to publicly, or even privately, request measures like this, as such moves will have an impact on the bottom lines of domestic oil producers.
Speaking of the Saudi’s, and their state owned oil ‘corporation’ ARAMCO:
ARAMCO RAISES ALL JULY OIL PRICING TO NORTH WEST EUROPE
ARAMCO RAISES ALL JULY OIL PRICING TO MED
ARAMCO RAISES MOST JULY OIL PRICINGS TO ASIA, U.S.
— Giovanni Staunovo🛢 (@staunovo) June 5, 2018
Will this have an impact on the propane export trading arb? To be determined….
WHY IT MATTERS (WHIM): I am going to try to add this sort of ‘cut to the chase’ takeaway on points I raise, so that those of you who prefer brevity to verbosity can scan and skim.
These things matter because if OPEC (led by the Saudi’s) are willing to play ball with the United States, and through the US, the global economic climate in order to thwart economic slowdowns, which means people consuming less crude oil, it definitely marks a change from past and historic OPEC regimes who seemed not to care so much about the rest of the world and the impacts their decisions had. I am sure that is an oversimplification, but it’s just my observation. And even the jawboning from OPEC and Russia on the ‘we’ll increase production if needed’ front has led to an over 10% drop in WTI crude oil values since the $72.24 high close reached on May 21st. Along with that, Mt Belvieu (MTB) propane is trading in the $.8800/cpg range today, while Conway is nearer to $.6650…this is more than a nickel off the high’s we saw at each trading hub last week.
THE MT BELVIEU TO CONWAY GAP: Take a look at those numbers I just shared. That is an enormous differential between the two trading markets, over $.2000/cpg. The differential has been significant since the winter, and it’s as big as it has been in at least six years. It makes one begin to ponder about how quickly Conway can build inventory for this coming winter, but I wouldn’t hang my hat on that worry as things just seem to correct themselves on that front by the time we get to September and October, but one would think as much propane as possible would be making it’s way from the Conway to MTB markets.
We have seen a spread like this before, back in 2012.
As you can see, the MTB to Conway spread averaged nearly $.2000/cpg in 2012…for the entire year. I’d suggest the average so far for 2018 is likely somewhere in the $.1500 range right now, if not a tad higher…we saw this average just over $.1000 in 2011, but no more than $4.33 in either direction between 1996 and 2010. So this sort of spread, and it’s duration, is not common.
CORN CROP CONDITIONS: We’re to that point on the calendar year where the USDA releases crop conditions each Monday. Here is a great graphical representation from Kevin Van Trump, of the Van Trump Report:
You can see some growing stress in crops in Missouri and Indiana. It’s still very early, but I am concerned for the Southern tier of Iowa as well as northern Illinois as well.