Propane stocks FINALLY drew down a bit, with a draw of 3.7 million to 71.2 million in the week of 1/16/15, as reported by the Energy Information Administration. Current inventory is 35.9 million above 2014’s inventory level at this time and 19.2 million above the 5-year average of 52 million.
All Regional Inventories Dropped: Midwest down 1.6 to 23.7 million; Gulf down 1.3 to 39.7 million; East down 400,000 to 4.7 million; and West down 200,000 to 3.2 million.
Inventories Remain Higher Than Historical Averages: Mid-Con is 13.5 million above last year’s inventory level and is up 4.8 million from the 5-year average of 20.3 million. Gulf Coast inventory is 19.6 million above last year and 11.8 million above the 5-year average of 27.9 million. East Coast is up 1.5 million from last year and is 700,000 above the 5-year average of 4 million.
Propane imports were up 35,000 bpd to 154,000 bpd. East Coast was down 2,000 to 50,000; Midwest was up 46,000 to 78,000; Gulf was flat at 8 bpd and West was down 8,000 to 18,000. Propane exports were flat from last week at 538,000 bpd.
Other Inventory Numbers:
Crude Up: +10.1 mm to 1,088.8
Motor Gas Up: +0.6 mm to 240.9
Distillates Down: -3.3 mm to 136.6
PRICING: We’ve seen propane prices rise, both in month and out the curve, in the last two weeks. Contract values for next year have risen over a nickel from their lows. That being said, I would not lament the rise; I think once we get through this winter, we’ll see pricing ease back a bit.
One thing to keep an eye on will be the gap between the in month and the outmonth values…I think we’ll see in month discounts and/or drops while they drop in outmonth pricing will not follow in lock step…where we could see two steps back in the in month and one step back in the outmonth. Buying demand for the outmonth will be there at these price levels as there is very minimal downside risk.
I won’t tell you there isn’t any downside risk right now because we have seen prices lower than where they are right now. But I can say with confidence that the upside risk is significant; as crude prices go, so goes propane. That, despite bearish fundamentals in propane stocks both now and coming out of this winter. We will likely see propane stocks at unprecedented levels come April 1st. The previous April 1st inventory high was 44.8 million barrels, in 2012 and then 44.6 million barrels in 1986.
There have been 19 million barrel drawdowns January to March in previous years, but that is about the peak we have seen. For the sake of discussion, if we draw down inventories another 20 million barrels from where they are now, something I don’t anticipate, we’d still have over 50 million barrels of propane on hand in the United States, a new all-time April 1st high. I don’t see how we won’t be in the 50 million range come April 1st, 2015. That’s obviously very bearish.
Most folks have stepped in and bought something for next year, but not in great volume. If you haven’t done that yet, or if you have bought very little, my advice would be to wait these next few weeks out and see if we can’t dip down a nickel to ten cents. If we do see that, I’d suggest stepping in at that point and making some purchases because your downside risk would be insignificant compared to the upside risk that is built into the industry with crude oil trading in the $46 range right now.
Try to guess the bottom of the crude industry is nothing more than that; a guess. The Saudi’s seem content to keep their production rolling and as long as they do that, the market supply and demand factors will be heavy on the supply side and prices will stay low. I don’t expect to see any change in that strategy the rest of the 1st quarter. OPEC has their next regularly scheduled meeting the first week of June.
So for now, keep the pedal to the metal and lift your remaining contracts for this year. February has some significant cold risks according to the weather folks I follow, but the models are really at odds with one another, showing serious cold one day, backing off of it the next and then back on the cold the following day. Model mayhem, to be sure.