U.S. propane inventory grew nearly 4 million barrels last week as exports remained sluggish for a second week in a row.
Exports this week were lower than at the same time last year, which is rare. The United States exported just 818,000 barrels per day (bpd) compared to 1.198 million bpd during the same week last year – a 380,000-bpd difference.
Over the past two weeks, U.S. exports averaged just 855,500 bpd compared to a 1.071 million-barrel average in 2019 prior to those two weeks. Export economics have been unfavorable, and China is no longer taking U.S. propane. China has turned to the Middle East for its supply, as it continues its trade war with the United States. U.S. propane is having to backfill into other markets.
This is an ominous development for producers in a terribly oversupplied domestic market. U.S. domestic demand was just 938,000 bpd, consuming less than half of U.S. propane production of 2.191 million bpd last week. That left 1.253 million bpd of production looking for a home. With only 818,000 bpd finding overseas landing spots, 435,000 bpd of U.S. production had to go into inventory. Additionally, the U.S. received 134,000 bpd of propane imports, forcing a total of 569,000 bpd into inventory.
That pushed U.S inventory to 90.496 million barrels, 21.655 million barrels or 31.5 percent higher than last year. Of course, inventories are simply a symptom of oversupply.
During every week of 2018, U.S. propane production set a record high for that week. Production this year is blowing those records completely out of the water. Low prices for natural gas, natural gas liquids and now even crude don’t seem to matter. Production just keeps climbing.
Despite a possible price floor, there is still a lot of risk to propane prices. Propane was moving up on several days when crude was falling. Prices are drawing in buyers, but long-term upward price movement may still lack buyer commitment.
We have talked a lot recently about the new export capacity that will be available by the end of this quarter potentially being a game-changer, with the caveat that global demand would have to remain robust. The weakness in propane exports over the last two weeks sheds some doubts, given they have been well below current capacity.