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Propane inventories begin heating season at 5-year lows

HOUSTON, September 19, 2018 (PCW) -- Propane inventories look set to begin the winter heating season at levels last seen in 2013, EIA data shows. Winter strip values on the forward curve have risen 39% since the traditional injection season began in April, according to PCW forward curve assessments.

Stockpiles finished August at 70.572 million barrels, 125,000 barrels below year-earlier levels and 8.028 million barrels lower than the five-year average for the same time frame. The last time inventories touched such nadirs was August 2013 when they stood at 61.789 million barrels, per EIA data.

Unlike 2013, which saw massive amounts of heating demand due to a polar vortex, this year’s inventory shortfalls are due to record exports. Propane exports are averaging 927,833 b/d so far this year (Jan-Jun), up from 911,833 b/d in 1H 2017.

September has continued to see stockpiles linger at historic lows. EIA reported levels were at 71.835 million barrels for the week ended Septembber 7, 11% below the five-year average. EnVantage, meanwhile, is forecasting inventories to finish October at 73 million barrels. Again, the last time levels were this low was Oct 2013 (61.776 million barrels).

As a result, the winter strip on the forward curve is averaging around 102 cpg so far this month. It was assessed at 102.25 cpg on Thursday. In contrast, the winter strip last year averaged 89.4 cpg, PCW historical price data shows, with the three-year average at 65 cpg.

Since the beginning of April this year, the winter strip has increased from 74.85 cpg to 104.075 cpg on Wednesday, a 39% uptick. With stockpiles at such low levels, price volatility is to be expected as propane enters its peak demand season. Further muddying the supply/demand balance are production levels that are nearing record highs.

US propane/propylene production hit a record of 1.997 million b/d for the week ending September 7, EIA data showed. Recent decreases in export levels, due to the ongoing US-China tariff war, could exert more bearish pressure on the winter strip going forward. The current forward curve indicates the bears could well be winning. The 4Q strip is showing atypical backwardation through year’s end. In years past, the 4Q structure has largely been in contango due to heating demand both domestically and globally. -- Samantha Hartke

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