Propane inventories drew 6.7M/bbls this past week and now stand at 66M/bbls, their second lowest level for this time of year in the past seven years. The Gulf (PADDIII) drew 4.3M/bbls while the Midwest (PADDII) drew 1.7M/bbls. Exports were reported at 1.347M/bpd with production at 2.34M/bpd. domestic demand was reported to be over 2.1M/bpd, which is where the big change was week over week. Exports were up nearly 300K/bpd from the previous week but production was nearly 100K/bpd stronger, but the domestic demand number was 400K/bpd stronger this week compared to last.
The story of our industry right now is the steep rise in propane prices since late November, as shown in the next graphic. Flat price averages have risen $.3600/cpg in Conway and over $.3700/cpg at MTB since November 20th. This, despite the 4th warmest November on record, a December that did not include any anomalous cold for the majority of the country and a January that has started out warmer than normal for most of the United States with the exception of the Rocky Mountains in Colorado and Utah, along with Texas, Louisiana and Arkansas.
Propane’s price movements have been primarily spurred on by record export demand to Asia, as it has been historically cold there and the Polar Vortex is going to be paying them a visit for a while, as the coldest air on the planet has been dislodged from its Arctic home and pushed to the Asian side of the Northern Hemisphere.
As I have written before, this is a double-whammy for American propane retailers…by and large, you are not seeing any increase in HDD’s or demand, but spot propane prices are skyrocketing due to the cold weather and demands for propane in Asia. This is the result when propane exports from the United States have exceeded domestic demand and home heating…it’s a new world for us all, and these fundamental shifts are not going away any time soon, which will put even more pressure on propane retailers to implementing price protection tools for even larger portions of their propane supply going forward.
The red arrow below shows current propane inventories, with 2017-2018 levels the lowest we have seen for this time of year over the past seven. The blue line represents where we are now. We have drawn down 36M/bbls of inventory since the EIA reporting week of September 25th, which has been 15 reporting weeks. The Winter of 2016-2017 saw the largest in-year drawdown of inventories on record, and when you count off 15 reporting weeks from the 2016 inventory peak of 104.1M/bbls on 9/30/16, inventories had drawn 31.7M/bbls in the same elapsed time period. In other words, we are drawing down inventories at a faster pace this year than we did during the largest inventory peak to trough season on record that was 2016-2017….and both of these winters were warmer than normal, with exports the primary story line for each.