Trader’s Corner, a weekly partnership with Cost Management Solutions, analyzes propane supply and price trends. This week, Mark Rachel, director of research and publications, continues to focus on possible changes in propane demand and how that could affect inventories.
Catch up on last week’s Trader’s Corner here: Part III: Could the Stock Trend Be Reversing in 2023?
Figure 1: Cost Management Solutions Click to expand.
This week we’re going to revisit a lot of what we discussed last week, because the latest data just made us shake our heads even more. For the week ending Jan. 20, the Energy Information Administration reported that U.S. propane demand fell 466,000 barrels per day (bpd) to 1.052 million bpd. That’s a staggering 1.138 million barrels per day less than the same week last year.
In the first 20 days of this year, U.S. propane demand averaged 1.264 million barrels per day. In the same period last year, it was 2.002 million barrels per day. That’s a difference of 739,000 barrels per day, representing 14.780 million barrels less demand in the first 20 days of 2023 than in the same period in 2022.
The lack of domestic demand is largely offset by strong export demand.
Diagram 2: Cost Management Solutions Click to expand.
Although it rose by 415,000 bpd in the first 20 days of last year, exports did not offset a decline in domestic demand of 739,000 bpd. Thus, we saw US propane inventories decline much less than normal in the first three weeks of this year, keeping them near five-year highs.
Chart 3 shows the combined (domestic and export) demand for propane in the US for each year. This year is a big departure from the past two years, but it’s not unprecedented. Demand at the start of 2020 was similar to this year.
Figure 3: Cost Management Solutions Click to expand.
What has puzzled us is that the heating degree-days this winter are higher than last year.
From July 1, 2022, to January 21, 2023, there were 189 more heating degree days on a population-weighted average than the same period a year ago. That’s a 10 percent increase. Yet during that same period, US core (center) inventories rose from 170,000 barrels below the previous year to 21.542 million barrels above the previous year. As an industry, we continue to argue that increased production is the cause. That’s certainly a factor, but the annual increase in production from July 1 to January 21 was 81,000 barrels per day. The bigger impact is that domestic demand fell by 275,000 bpd during that period year-over-year.
As we showed last week, petrochemicals are using slightly less propane as a feedstock, but the industry data we’re seeing only shows it by about 8,000 barrels per day. So we keep coming back to where the heck is domestic retail demand given that the heating degree-days are slightly higher than last year?
Table: Cost Management Solutions Click to enlarge.
Last week we theorized that perhaps secondary (retailer) and tertiary (consumer) inventories were drawn during this time period, resulting in less call supply than primary storage. Unfortunately, we have no way to quantify secondary and tertiary storage. Also part of the equation is that more propane is produced for fuel at the expense of propylene. But this seeming black hole of inner search keeps us up at night. We just feel like we’re somehow running off a propane supply credit card and at some point the bill will come due.
We will admit that we are always concerned that propane retailers and their customers will be blindsided by a rapid change in market conditions that leaves them behind in preparing for higher prices. These situations can make our industry roll their eyes. Perhaps these concerns lead us to see black holes that don’t actually exist. Let’s hope so.
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