After looking through yesterday’s EIA Data a bit more following its release, I wanted to share a few things. They may be apropos of nothing, but I found them interesting and thought I would share.
First, and probably least significant, is that we have had ten consecutive EIA reporting weeks with an inventory draw of at least 2.5M/bbls. The last time we had such a streak was in 2017, and that streak ran to 11 weeks. That led me to wonder about this winter’s inventory drawdowns compared to the past. First, let’s look at national inventories as a whole, and the numbers displayed in this next image show the inventory peak and inventory low for a given year. The year shown is the back half of that respective supply season. For example, 2025 is for the 2024-2025 inventory building ‘season’ which I target as April through March.
The 2016-2017 peak (shown as 2017) to low inventory drawdown of 64.36M/bbls remains the largest drawdown dating back to at least 2014-2015, and it may very well be the largest ever, considering that prior to the Shale Era taking hold in roughly 2013, if seasonal inventories got to 70M/bbls, the trading markets felt that was ample supply to get through winter and inventories barely went below 30M/bbls.
Next came 2020-2021 (shown as 2021) with 62.76M/bbls, and then we get to the winter we just experienced, currently at 57.8M/bbls. This season isn’t quite finished, as this week’s draw was 3.7M/bbls, so there may be a little more left in the tank, but not much. This winter’s drawdown is understandable, considering it was likely the coldest winter the US has seen since 2013-2014 on a GWHDD basis. We also have larger export capacity now than in years past, but the 2016-2017 winter was primarily export driven, as that winter was one of the warmest on record.
This next image will focus just on PADD-II, or the Midwestern region’s inventory drawdowns, same premise as before:
This year has seen a 19.9M/bbl drawdown from PADD-II so far, which is the highest dating back through the winter of 2013-2014. Based on my weekly EIA data going back through that cold winter of 13-14, we just experienced the largest inventory peak to low drawdown of Midwestern propane inventories in at least 12 years, if not ever. Remember that Michigan inventory data is also factored into the Midwest, as is Conway storage.
So we are coming out of this winter with PADD-II and National inventories below their five and ten year averages, which would typically place inventories in a neutral to slightly bullish fundamentals basket. However, there are global and national economic headwinds that are pushing down the price of WTI crude oil, despite the underlying crude data being suggestive that the market is undersupplied and will remain that way in 2025. This image comes from Eric Nuttall from Ninepoint Partners, an investment advisory entity:
The green horizontal line indicates a supply and demand balance. Anything above the green line shows supply outpacing demand, and conversely, anything below the green line shows demand outpacing supply. The only time supply has outpaced demand was during the COVID lockdown period. The rest of the time, including now, demand is higher than expected supply.
So we have this data, yet oil prices have been soft, with WTI now trading below $70/bbl. It would appear that market sentiment, and not underlying data, is driving price right now.
While OPEC+ is looking to add more barrels to the markets this spring (potentially 138,000/bpd), Kazakhstan has been OVER producing by roughly 500,000/bpd. If Kazakhstan comes back in line with their quota, which is what is ‘supposed’ to happen, the OPEC+ math may actually lead to a reduction in supply compared to what is currently been happening. The United States has also lost over 100,000/bpd of production in the past few months. The EIA’s weekly report also mentioned ‘tightening market conditions for oil through the middle part of this year’.
Even with a $10/bbl drop in oil prices, gas and diesel prices have not fallen correspondingly, and likely will not, as we get ready to switch over to the more expensive summer blends for gasoline and ‘summer demand’, but also because US refining capacity is not what it used to be. Even in this ‘lower’ crude oil price environment, with reduced refining capacity, gasoline and distillate stocks are not able to keep up to the point where lower oil prices equate to a larger drop in prices at the pump.
Propane values have continued to soften, but not at the pace of WTI.
When you toss in market sentiments and market fundamentals, you can paint a picture for both upside and downside price risks in the coming months. We have a great deal of economic and geopolitical uncertainty in the world, which often leads to heightened trading volatility. These markets are not for the faint of heart.