US propane stock build accelerates

OREANDA-NEWS. July 22, 2015. Mont Belvieu, Texas, propane retailers are filling storage earlier than usual because of low prices this summer ahead of peak winter demand.

Some retailers have filled their tanks more than halfway full, only leaving room for day-to-day operations.

Meanwhile, spot propane prices firmed, decoupling from US benchmark WTI crude. WTI futures fell below \\$50/bl on 20 July, but LST propane's value relative to WTI increased to over 35pc.

LST propane has also been traded as a hedge against crude.

Traders appear to be buying volumes of propane because of its seasonal contango in the fourth and first quarters. LST propane's July/fourth quarter contango stands at about 4.375? and the July/first quarter contango is at 6.375? premium.

Meanwhile, WTI's curve shows a weaker contango. WTI in the fourth quarter are pegged at about \\$52.14/bl, and the first quarter at \\$53.60/bl. Fourth and first quarter values differ very little from where crude settled on 17 July, at \\$50.89/bl.

As retailers slowly fill their storage levels, prices could remain flat going into the peak demand season.

The crop-drying and winter heating season dictate domestic demand.

During the crop-drying and winter season of 2012/2013 propane retailers were caught off guard by the robust crop-drying season and the prolonged winter weather. Most trade houses and retailers found themselves short volumes of the heating fuel and LST prices soared, hitting 174?/USG in February.

The following summer, propane retailers slowly built storage levels as to prepare for another robust demand season. A lack of crop-drying demand, coupled with a weaker winter, drove values weaker, and during the fourth and first quarters prices averaged 76.59?/USG, and 53?/USG, respectively.

The recent lack of export demand due to high VLGC freight rates and weak international prices also spurred bearish sentiment for the months ahead. Most US exports are long-term take-or-pay contracts, and not as many spot cargoes are traveling to Europe and Asia. That has left more supply at the US Gulf coast.

US Gulf coast propane inventories stand at 55.7mn bl, most recently increasing by a large 2.113mn bl. US stocks stand at 87.382mn bl, increasing by 1.658mn bl for the week that ended 10 July.

Despite the EIA's larger than expected PADD III inventories, the build in total US stockpiles were mostly offset by a sharp 931,000 bl decline in inventories along the eastern seaboard.

The draw came amid ongoing exports out of the regions. Processing plants in the Marcellus area have cut back production during the summer months until margins improve.