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Trader's Corner
This week’s Trader’s Corner looks at propane imports.
This past week, propane prices got strong support when the U.S. Energy Information Administration (EIA) reported in its Weekly Petroleum Status Report on Wednesday that U.S. propane inventory was essentially unchanged from the previous week.
Last week in Trader’s Corner, we looked at the sharp increase in U.S. propane exports, discussing how it was the primary contributor to the lighter inventory builds that have been occurring. As you will recall, despite the increased export activity, U.S. propane inventory builds were still trending normally for this time of year.
But as the updated chart for this week shows (click to enlarge), the lack of build changed that trend, which suddenly looked much more bullish for prices. Propane traders reacted to the report by taking propane up sharply. Belvieu was up 4.875 cents and Conway 5 cents from Wednesday to Friday.
It seems a bit of an overreaction when just looking at the chart, for propane prices to move up about 5 percent in three days just because of one inventory report. But, as we pointed out last week, around 3 million barrels per month of additional export capacity will be on line next month. Traders are also expecting solid demand for crop drying this year. With inventory already falling before those demand influences occur, sellers are seeing their negotiating position strengthen.
However, what we want to add this week is that it is not just the changes on the demand side that are contributing to the tightening inventory picture and upward pressure on propane prices. The supply side had its contributor too. While U.S. propane production continues to grow, propane imports are lagging.
U.S. propane exports took a dramatic jump in March, beginning with about the 13th week of the year. A nice bounce in imports during week’s 23 to 26 helped offset those exports to some degree. A five-year high for imports was set in week 26.
After that week, imports began to fall off and by this past week, week 32, a new five-year low mark for imports was set. Rapidly rising exports and sharply falling imports are certainly ingredients for making light inventory builds.
The Gulf Coast hasn’t received a single barrel of waterborne propane imports this year, essentially making what Canadian producers send to the U.S. the import game.
Canada came out of this past winter with inventory 67 percent below average and setting new five-year low marks by the end of March. Inventory improved to 25 percent below normal by the end of March but is still setting five-year lows. There is reduced incentive for Canadian producers to send their barrels to the United States.
Right now a Canadian producer is seeing a rapid rise in U.S. propane prices and is in the inventory position to hold barrels and contribute to the tighter supply situation in the United States. They can wait and see if new export capacity and crop drying further pressure U.S. prices. Given the relative scarcity of Canadian barrels and consequently plenty of storage availability, they can patiently wait for further appreciation in the U.S. market.
Obviously a U.S. propane retailer would like to see a big jump in Canadian inventories over the next couple of months that might result in more exporting to the U.S. by the core winter months. If not, supplies could continue getting squeezed from both the import and export side. We have no choice but prepare for that possibility and hope it doesn’t come to fruition.
Call Cost Management Solutions today at 888-441-3338 for more information about how Client Services can enhance your business, or drop us an email at info@propanecost.com.
WEEK IN REVIEW
The story of the week was really the light build in propane inventory that caused propane prices to outpace crude to the upside.
Crude still had its share of support from threats to supply in the Middle East and North Africa.
We go into the week bullish. It appears propane sellers are in the driver’s seat until more normal inventory builds start occurring. One might hope for crude to tank, taking some of the pressure off propane prices, but it is hard to visualize resolution in any of the geopolitical situations in the Middle East.
LAST WEEK'S DAILY HIGHLIGHTS
Monday: The upward momentum in propane and crude cooled to begin the new week. Concerns about the Fed cutting back on its stimulus measures limited the upside for crude, and threats to crude supplies limited the downside.
Tuesday: It took a late rally for West Texas Intermediate to keep its uptrend going. Good news on U.S. retail sales for July was the catalyst to push crude up. Propane moved up with crude but was a bit lethargic and unable to match the percentage gain posted by crude.
Wednesday: The EIA reported practically no build in U.S. propane inventory the previous week and Gulf Coast inventory actually experienced a sizeable draw. That data pushed propane prices at both hubs up 2 cents. Crude was little changed, but once again rallied hard at the end of the day to post a small gain. An escalation in the fighting in Egypt was the key support.
Thursday: The inventory trend kept propane prices moving higher. Threats to crude supplies and positive news on U.S. jobless claims and inflation kept crude moving higher. Investors were selling out of equities on expectation the Fed will begin scaling back on its stimulus measures soon. Some of the money coming out of equities was finding its way to crude futures due to the crude supply threats.
Friday: Buying pressure on propane continued as traders worried about light inventory builds. Crude was volatile, but kept the uptrend going. |
