Propane Inventory Concerns

From This Week In Petroleum:

Propane Inventories Post October Draw
Total propane inventories reported an atypical 0.5 million-barrel stock draw during October, the first since 2002, despite nearly normal temperatures during the month. In comparison, the most recent 5- year period showed inventories gaining an average of nearly 1.9 million barrels. The final week of October saw inventories remain relatively flat at an estimated 60.4 million barrels.

Inventories are nowhere near where they typically are (and arguably where they need to be), but the chem consumption rate is abysmal, too. Right now, propane to crude values are at ~50%. This is because when the chems aren't running at a high percent of capacity, there just aren't enough buyers of NGL's - we run a surplus of NGL's in the country. But the forward curve of prices has the propane to crude spread in the 50% range well into the future.

If one assumes that the economic downturn that we are experiencing will be handled by the loose monetary policies of the US central bank and the central banks of the civilized world, then chem operating rates will rebound at some point in the next year, and that percentage of propane to crude will improve.

What does that mean for the dealer? Well, often a low percentage value in the propane to crude relationship helps indicate (along with other factors) a potential buy-point in the marketplace. What retail price can you sell to your customers for Winter 2009? If you can take the current hub price, and your differential and your retail margin and make your customers happy - maybe this is a price that you should own for your business.