U.S. pulls through 2018-2019 winter colder than seen in last four years, still some lingering concerns over stocks in PADD 2
It is likely that the 2018-2019 winter heating season will finish out the year being recorded as colder than we have seen recently. While nowhere near as cold as the historic 2013-2014 polar vortex season, by the third week of March this season had seen 454 more heating degree days than average across the 2015 through 2017 seasons, at the same point. This winter season saw colder than normal weather to start the season that lasted from the beginning of October through the beginning of December. The US then saw a respite from the unusually cold weather mid-December through mid-January. The cold returned at the end of January and finished out the rest of the winter months, remaining elevated but starting to return to more seasonal levels in the last weeks of March. Reported levels of weekly propane product supplied (a measure of demand) largely followed a similar deviation from recent averages. In sum, total demand as reported by the EIA’s weekly estimates of product supplied has been over 20,000,000 barrels greater than the average seen by the same point in the season over the previous three seasons.
Propane prices at Conway largely responded as would be expected. Conway started this season at a significant discount to Mont Belvieu, due to transportation and fractionation constraints at Mont Belvieu combined with growing waterborne export demand. As winter weather, and agriculture demand, picked up in October the spread closed some, then continued to close with the unusually cold weather. The spread started to open back up with the mid-December to mid-January “warm” spell and closed again when winter reasserted itself at the end of January, beginning of February. As central US demand is expected to drop off with the end of the winter heating season and HDDs are returning to seasonal averages the spread between the ratios at the two hubs has recently been opening back up slowly.
Despite the extra demand from the colder weather the United States saw this season, reported stocks across the entire country continue to remain elevated above the seasonal lows seen in 2017 and 2018, due to even greater increases in production. The EIA reported the first US wide build of the season in the week ending March 15, 2018. On the other hand, the late winter cold weather has strongly affected available stocks in the Midwest region. The EIA is reporting that PADD 2 stock levels have continued to fall rapidly and are now below the levels seen during the same period at the beginning of 2017 and 2018. While the return to more typical seasonal temperatures and the approach of the end of winter should ease concerns of a price spike due to short availability, the low PADD 2 stock levels still merit some lingering concerns.