warm thoughts


Written on: October 19, 2022

EIA inventory data released Wednesday morning showed a build of propane to 86mmbbls, up from 85.5mmbls last week and much stronger than 73.6mmbbls a year ago. East Coast levels were reported at 8.7mmbbls, up from 8.6mmbbls last week and up from 8.2mmbbls a year ago. Midwest (PADD 2) levels showed a draw to 24.6mmbbls, down from 24.9mmbbls last week and 24.9mmbbls a year ago. Gulf Coast propane (PADD 3) showed a build to 47.5mmbbls, up from 47.1 last week and 35.3 a year ago. PADD’s 4 & 5 in the west showed a build to 5.2mmbbls, up from 4.9mmbbls last week and down from 5.3mmbbls a year ago.

Propane has been trading around 80 cpg at Mt. Belvieu and Conway, down five cpg from this time a week ago amid warm temps across much of the US and stronger propane inventory data recently. Brent crude oil was up slightly this morning amid caution with falling US crude stocks in a generally tight market. Meanwhile, there are bearish sentiments as well with Chinese demand growth in question, lower gas prices and reports that the US would release more oil from its reserves.

Crude oil prices hit their lowest price in two weeks during the previous trading session with news that President Biden plans to release 15 million barrels of oil from the Strategic Petroleum Reserve (SPR). Meanwhile, the prospect of a European Union ban on Russian crude and oil products and the output cut from OPEC+ of 2 million barrels per day also has been supportive of crude prices.

The cut off of natural gas supplies from Russia to Europe will likely pull more propane exports from the US to Europe. In recent years, strong exports of propane due to increased demand overseas and the capacity to ship it was caused depletion by as much as 50mmbbls in two months.

It is not as easy for Europe to replace natural gas from Russia as it is for the US and other countries to replace crude oil from Russia. With the only alternative being to liquify natural gas and send it via ship and then deliquefy it in Europe, there are simply not enough facilities to do this and provide the same level of supplies that Russia can ship via pipeline. Putin is using natural gas as one of his tools of war, having cut supplies this summer to just 20% and then cutting off supplies altogether. Weather in Europe as well as the US will impact draws on US propane.

In the EIA Short Term Energy Outlook (STEO) on October 12, forecasts for average household expenditures for home heating fuels to increase this winter because of higher expected fuel costs and higher energy consumption due to colder temperatures. The outlook expects expenditures for homes that heat with natural gas will rise by 28%, heating oil by 27%, electricity by 10% and propane by 5% from October to March. The STEO expects Brent crude to average 93% per barrel in the fourth quarter of 2022 and $95 per barrel in 2023.