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Propane supplies heading for four-year lows, prices vulnerable to spikes

HOUSTON, October 31, 2017 -- Thanks to several weeks of unseasonable drops, US propane inventories look set to end the traditional build season in Oct at levels not seen since 2013.

Stockpiles for the month-to-date in Oct were at 74.942 million barrels, according to EIA data. The last time stockpiles were this low in Oct, which marks the end of the traditional build season, was in 2013 (61.776 million barrels) (see below).

In a previous issue of NGLs Week, we dealt with main reason for the lower-than-average builds: exports. However, since then, Hurricane Harvey and its resulting supply disruptions amid continued strong export levels and early domestic heating demand has brought further pressure onto stockpiles. EnVantange currently forecasts propane inventories will end the year around 61 million barrels, which will rival levels last seen at the end of 2013 (42.348 million barrels).

The end result of these tightening inventories has been a soaring spot price. Gulf Coast spot propane closed the week at 99.75 cpg, a three-year high, as per PetroChem Wire historical prices. These rising spot prices have had a marked knock-on effect on the winter strip (Nov-Mar), a time when spot prices typically hit their highs of the year. The winter strip began the year around 62.58 cpg and came in Friday at 95.5 cpg, a 52.6% increase. The last time the winter strip was this high was in 2013, when the strip averaged 126.86 cpg. Propane prices are likely to increase given the onset of the winter heating season.

Forecasts are calling for normal to below-normal temperatures, particularly in the major consuming regions of the Northeast and Midwest, and exports continue to climb. Exports are averaging around 27 million bbls/month, compared to last year’s average of 24.4 million bbls/month. What could provide a ceiling to prices is rising production in the longer-term. Propane production came in at an all-time high of 38.132 million barrels in Jul (1.23 million b/d), according to the EIA. While this, no doubt, will take a hit because of Harvey shut-ins, production is expected to recover by end-Nov, several analysts said. -- Samantha Hartke

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