March 2020 Inventory Trends Full Report


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On March 7, Saudi Arabia unsheathed a new oil market weapon: lower oil prices. With steep cuts in Saudi Aramco’s official selling prices (OSPs) for crude oil sales and with Vienna Alliance production restraint now eliminated after the collapse of Saudi and Russian talks on March 6, Saudi Arabia has made its intentions clear and to sell as much oil as its customers want to buy, up to its capacity of 12 million barrels per day (MMb/d). A massive crude oil market inventory build is underway based on previous periods’ oversupplies and now further exacerbated by a coronavirus-induced global economic turndown.

Global oil market near-term events and implication on the U.S. refining system and monthly by-product propane production over the short term

  • Significant crude oil over supply – expecting up to 10 MMb/d of world oil production will be cut or shut in from April to June 2020
  • Hardest hit supplying countries are Russia and the U.S.
  • Logistical constraints will emerge, including but not limited to, crude oil storage globally as demand destruction is reverberating through the related supply chains
  • Oil demand for 2Q 2020 is projected to be 16.4 MMb/d less than the same time last year, with an expected decline for the month of April by about 20 MMb/d
  • Additional crude oil production levels are expected to be adjusted globally, assuming global oil demand returns to growth in 2021
  • Consumption of gasoline, diesel and jet fuel was down 6.2 MMb/d (or 10%) globally in February with the worse yet to come
  • Our current view is the number of new COVID-19 cases peaks by early May, with a great amount of uncertainty as lockdown measures continue to propagate globally
  • U.S. crude runs are expected to fall from around 16.8 MMb/d currently to 10.6 MM/d in the second quarter, a 58% utilization rate, and includes idling and run cuts
  • By-product propane production from refineries is expected to fall from roughly 0.6 MMb/d in December 2019 (the last official EIA monthly data point) to a trough and low of 0.4 MMb/d by May 2020

U.S. Upstream operator/producer responses to global oil market and implications to the U.S. gas processing system and monthly by-product propane production over the short term

  • The U.S. upstream oil and natural gas producers/operators are significantly impaired by the current over-supply situation
  • U.S. upstream producers/operators will (and have) halted upstream drilling activity operating on a variable cost basis to the extent possible
  • U.S. upstream producers/operators will resist shutting in wells as a shut in could materially damage the reservoir along with partial or total loss of the reserves along with the lost net present value of deferring oil, natural gas and propane (for example) production
  • By-product propane production from natural gas processing is expected to slowly fall from roughly 1.7 MMb/d in December 2019 to 1.5 MMb/d by March 2021
  • Further declines in propane production from natural gas processing are expected for the balance of 2021
  • By-product propane production could fall faster, in theory, but midstream companies will likely first capture flared gas from the Permian basin and Bakken shale leading to incremental natural gas and propane production rates despite decreasing upstream drilling and completions activities

The U.S. propane market

The U.S. propane market over the past month can be characterized as having higher overall demand as compared to supplies along with relatively stable exports. U.S. inventory fell over the month from approximately 70 million barrels (MMbbl) at the end of February to approximately 65 MMbbl by the end of March. IHS Markit’s previous monthly trend report expected the U.S. propane inventory trough to occur in April 2020. The current trend report notes the inventory trough has occurred in March and inventory levels will begin to climb from this point forward. For the month of March, U.S. production from natural gas processing has continued to be resilient, however overall demand outstripped supplies.

U.S. refinery run cuts and halting U.S. upstream operator/producer activities will impact propane supplies for the balance of 2020 and further into 2021. For the next few months refinery runs will be reduced, and related propane production will follow. U.S. refinery run cuts will continue through October 2020 while U.S. propane production from natural gas processing will remain relatively stable to slight declining in 2020 with deeper declines expected in 2021.

Offsetting these supply and demand imbalances are lower exports, and exports are expected to decline slightly in the coming months, reflected by COVID-19 impacted demand outside of the U.S. IHS Markit’s forecast for propane exports have been reduced as compared to last month’s report.  COVID-19 induced economic turndowns could further negatively impact propane demand outside of the U.S. placing additional downward pressure on exports.

Monthly ending inventory levels for the U.S. overall as reported by the EIA for December 2019 (the last actual reported data point) fell from the previous month to 84.1 million barrels, approximately 33 days of demand.

See the Stocks and Days tabs in the Propane Monthly Stock Report for the details. Lower total U.S. supplies and an erosion of stocks will partially be offset by lower consumption levels. Propane from natural gas processing is expected to slow while overall supplies decline partially offset by lower domestic demand.