warm thoughts

INVENTORY DATA BEARISH BUT WINTER CONCERNS ABOUND

Written on: September 21, 2022

EIA inventory data released Wednesday showed a build of 1.8mmbbl at Belvieu and an 800mbbl build at Conway bringing overall U.S. levels to 81.2mmbbls. This puts propane over 10mmbbls above year-ago levels although they are still closer to the bottom of the five-year average. This is likely another winter where warm conditions will mean smooth sailing but cold conditions could create some serious supply, price and distribution problems. With the ability to quickly ship propane to anywhere in the world, supply can be depleted very fast in a high world demand scenario.

D.D. Alexander, Chairman of the NPGA Propane Supply & Logistics Committee, said on a recent webinar, “If we have a cold winter, we’ll have to outbid the export market.” Alexander noted that over the past 28 months, propane production has only grown 4 percent while exports are increasing 10 percent each year.

Prices at Belvieu briefly dipped below a dollar a gallon after Wednesday’s bearish EIA inventory data but strengthened again at the end of the day. Conway and Belvieu trading within a penny of each other is a sign the market is working to keep propane in the Midwest in the aftermath of the Medford fire in Oklahoma. Demand for crop drying remains uncertain and could cause a depletion of supply at a time when more product may be needed further south as well.

Crude oil and natural gas continue to trade significantly higher this year than last year amid concerns as Russia shuts off supplies to Europe. Some analysts believe the shutting off of shipments of natural gas on the Nord Stream pipeline flowing to Europe could bump natural gas prices to $13 or $14/mmbtu. The ripple effect could cause propane demand to increase with shipments moving from the U.S. to replace natural gas in Europe where it is able to be a replacement.

This is a winter where the successful retail propane marketer will be the marketer prepared for all scenarios. While a mild season may mean prices pull back some, demand could ramp up and those who have backup plans and product and transportation availability in place will be the ones who ultimately have the successful winter.

Purple Frog Graphics