We will chat about the upcoming FRIGID outbreak that is barreling down on the United States here in a few minutes, but first, let’s take a look at some salient aspects in the markets as we begin the first full business week of 2024.
First up, a look at the prospects of propane exports from our friend Simon Hill at Cazbaa Energy:
“The U.S. market appears more balanced, with the stock draw of just over 2 MM Bbls being what we would expect at this time of year. Although Product Supplied (aka demand) did edge down a little but is around average at over 1.35 MM Bbls/d, which the same could also be said for exports, slightly down but again coming in above 1.7 MM BBls/d, despite ship arrival dates appearing to retreat. Production is also holding firm above 2.6 MM Bbls/d. Despite the ARB being closed we still have bids in excess of 5 c/g and offers above 8 c/g, but nothing’s passing the deal litmus test.
With auction fees for spot Panama Canal transits slipping quickly down to the few hundred thousand dollars, way below pre-Christmas times and a couple of VLGCs securing passage via the 1A system, which was felt more onerous only a few weeks ago, there might still be room for rates to reduce, driven by better cost management, but whether this will re-open the ARB, well that’s anyone’s guess.”
You can find the entire article at this link. I think that Propane Exports will be one of the biggest (if not the biggest) 2024 stories to watch for our industry. The drought at the Panama Canal is not something that you can ‘prepare’ for, as we have been discussing, and Simon’s area of expertise is in propane and LPG exports. The trading ARB is not favorable right now, and that is something that bears watching, as volumes that might otherwise be headed for the export market could back up at some point in time in 2024, which could lead to bearishness on pricing, but could also lead to carry conditions in the market.
Next up, Flashpoint’s Darius Lechtenberger shares his morning thoughts on the markets here:
“WTI crude oil and refined product prices are trading to the downside this morning. This morning’s price weakness appears to be linked to Saudi Arabia, which has responded to increasing global supply and competition by significantly reducing the February official selling price (OSP) of its flagship Arab Light crude to Asia, marking the lowest level in 27 months.
Supporting the prevailing bearish sentiments, John Kemp of Reuters highlighted that the net position across all three crude contracts hit a record low of 128 million barrels on December 12. Additionally, Goldman Sachs notes that Hedge Funds are the least invested in Energy Stocks in the past 5 years. On the flip side, Goldman Sachs also warns of a potential doubling in crude oil price in the event of an extended disruption in the Strait of Hormuz, describing the situation as a ‘powder keg’. Although the market currently views this scenario as improbable, recent events involving groups like the Houthi, effectively disrupting Red Sea traffic, raise concerns about the perceived ease of obstructing passage through the Strait of Hormuz. Winter is finally arriving this week with a Polar Vortex pushing thru nearly all of the U.S….stay warm and sell some propane!”
Simon also talks more about the Straight of Hormuz in the linked write-up above, and I would recommend giving it a read.
And now, we turn our attention to the weather forecast, which for the first time in many Januarys, looks to be a positive thing to discuss.
The next 10 to 15 days have a chance to yield some of the coldest air we have seen in January for many parts of the country in several years. As you can see in the days five to eight-time frame below, most of the USA is in a below-normal state. We’ve seen this type of cold come for a day or two and leave in recent years, but it’s been a minute since we have seen coast-to-coast below normals like this. The biggest question now isn’t whether or not this will happen, it will. Rather, it’s how long will this cold stay? There is currently some model disagreement on that and it’s still to early to know for certain…we will continue to share updates as the week progresses.