We are on pace to top 100M barrels of propane inventory before this year’s inventory build cycle is complete.
The old stand by was that if we hit 65M by the end of September, we’d likely make it through the winter, regardless of what mother nature threw at us. Some years we’d come out of winter with inventory levels in the ‘teens’ or low 20M range and then it heads back the other way.
The image below shows the track of traditional levels, and the blue line shows the past year or so, with the red dash line being the trend line:
That’s a lot of gas, unprecedented levels.
Not surprisingly, prices are at 13-year lows. The graphic below shows prices since 2002 at Conway, but the Mt Belvieu curve would look nearly identical:
With such an oversupply in not only propane but crude oil, it’s hard to imagine pricing running away from us too much this year. I say that with one significant caveat; you can bank on crazy being crazy, you just don’t know when. ISIS is going to do something at some time, or someone like them, that is going to cause some type of spike for energy markets. But how long would that last?
The economic news out of China is troubling and if their economy slows down, OPEC is going to have to back off their production of crude oil prices will depress to where those petro-dollar based economies will be trust into various states of financial Armageddon…which could create geopolitical events which cause the markets to move back up.
As for propane, there are still enough minds out there who believe we could have another winter similar to the last two, as long as the Sea Surface Temps in the Gulf of Alaska stay warm and even with a strong El Nino in play. But the thing that will suck up the excess propane supply slop seems to be the growing export market. We have been at max capacity for the past two months (500 to 600Kbpd) and as you can see from this graphic below, export capacity will triple over the next 18 months:
I can understand if you are thinking I am a broken record sometimes, but I look at the markets every day of every week of every month of every year. Things can change in a big way in a week, so if I am still seeing & saying the same things the following week, it doesn’t mean there is a lack of relevance…it just means things still look like they are heading in a fairly predictable direction.
All of this is to say my approach has not changed; cover what you sell for this winter but leave yourself open for spot opportunities. Take a good, hard look at buying some gas for 2016-2017 because of those export capacity projections come home to roost, we will not have a robust inventory situation 12 to 18 months from now which will likely lead to higher prices.
Propane inventories grew this week by 2.4 million (almost exclusively in the Gulf Coast) for a total of 92.8 million, reported by the Energy Information Administration as of 8/7/15. Record high levels of inventory persist, now 22.5 million above last year and 23.9 million above the 5-year average of 68.9 million.
Regional Inventories: Midwest unchanged at 26.1 million; Gulf up 2.4 million to 59 million; East down 100,000 to 4.3 million; and West up 100,000 to 3.4 million.
Historical Averages: Midwest is 2.7 million above last year and is 2.2 million above the 5-year average of 23.9 million. Gulf Coast inventory is 20.3 million above last year and 21.3 million above the 5-year average of 37.7 million. East Coast is down 1.1 million from last year and is down 300,000 from the 5-year average of 4.6 million.
Propane imports were up 24,000 to 98,000 bpd. East Coast up 2,000 to 22,000; Midwest up 17,000 to 62,000; Gulf was flat at zero bpd and West up 3,000 to 13,000. Propane exports were flat from last week at 547,000 bpd.
Additional Inventory Numbers:
Crude Down: -1.7 mm to 1,148.7
Motor Gas Down: -1.3 mm to 215.5
Distillates Up: +3.0 mm to 147.8