November 2020 Inventory Trends Full Report

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Overall crude oil market backdrop and key messages

Three big things happened in November 2020 that will impact the global and U.S. oil market in 2021:

Positive news about a vaccine,

Joe Biden winning the U.S. presidential election, and

the return of Libyan production.

These events point to higher oil demand in 2021 and more oil supply, including from Iran. On the flip side, the vaccine news is promising and in line with our base case assumptions. The IHS Markit global base case assumptions are higher world oil demand and prices in 2021, with a relatively bleak demand view over the next two to three months. Soaring new cases of COVID-19 in Europe and North America point to the possibility of demand weakness and downside risk in the short run, despite year-on-year oil demand growth in mainland China.

The supply side of the global oil market will accommodate weaker demand and OPEC+ is expected to adjust to the return of Libyan output. The plan for OPEC+ to increase production by 2 million barrels per day (MMb/d) in January will not become reality. IHS Markit assumes the OPEC+ decision on 1 December will be to maintain current levels of output or cut production if prices weaken again before the meeting. The price level in late November will have a big influence on the decision. Crude oil prices, namely WTI prices, have averaged $41 per barrel ($/bbl) for the month of November slowly climbing throughout the month from $37/bbl to approximately $44/bbl.

The U.S. propane market supplies are mainly driven by the United States upstream industry and financial discipline continues to be demanded by the investing community. Correspondingly, there has been a recent burst of mergers and acquisitions (M&A) activity in the U.S. Recent M&A aim to strengthen financial positions as the energy transition moves beyond slow motion. Consolidation is one path to deliver what investors have long been demanding—more financially disciplined upstream companies that have the scale and high-quality assets to generate better returns at lower oil prices. At the same time, money is flowing away from the oil and natural gas industry to renewables and related industries. It is occurring at a time of rising importance for environmental, social, and corporate (ESG) governance and requirements. With near term demand-side weakness, and longer-term pressure on the oil and gas industries, overall oil demand will likely limit upstream oil and natural gas production activities over the short term. U.S. crude oil production troughed and has recovered, but is well pre-oil price war/COVID-19 levels. The global crude oil market appears to have stabilized at the current level, therefore leading to stable outlook over the short term for U.S. propane supplies from natural gas processing.

The U.S. propane market outlook and expectations

This month’s trend report is highlighted by a detailed analysis, and review of the upstream situation from both natural gas processing and refinery supply perspectives. Along with this update, IHS Markit has incorporated actual EIA reported data and information for August, and daily pipeline analyses and estimates of propane production at the field level through fractionation along with refinery runs.

The current trend report includes upward revisions to supplies from natural gas processing in the range of 22,000 to 110,000 barrels per day (b/d) and downward revisions to refinery propane production around 9,000 b/d on a monthly forward basis through October 2021 as compared to the previous monthly trend report. The outlook for total demand, domestic demand and exports, has remained relatively unchanged as compared to last month’s trend report. These revisions lead to a slightly improving days of forward supply outlook for 2021. The current trend report and U.S. propane market situation is summarized below.

Actual days of forward supply for August 2019 were 46.9 and actual days of forward supply for August 2020 were 47.2 days, both reflecting a well-supplied market (as reported by the EIA).

The U.S. propane market is well supplied when compared to August of last year and the situation will improve slightly through the upcoming winter heating season.

The monthly average of days of forward supply for October 2019 through March 2020 was 33.4 days with a high point of 43.1 days in October 2019 and a low point of 27.6 days in February 2020.

The current estimate for the days of supply for October 2020 is 40.5 days and March 2021 is 34.6 days; March 2021 days of forward supply are an 8.2-day improvement as compared to the same time last year.

U.S. propane supplies from natural gas processing continue to show resilience but upside is limited over the next 13 months.

U.S. propane supplies from natural gas processing averaged 1.70 million b/d for October 2019 through March 2020, while propane supplies for the same forward period are expected to only be 50,000 b/d lower for the same upcoming period, despite all the upstream woes confronting the U.S. oil industry.

Overall demand remains relatively unchanged when comparing October 2019 through March 2020 to October 2020 through March 2021.

Overall U.S. inventory level is expected to end calendar year 2020 above 2019 levels.

PADD 3 inventory level is expected to end calendar year 2020 on par with the 2019 level.

All other PADD inventory levels are expected to end calendar year 2020 above 2019 levels.

The current Mont Belvieu average daily propane price for November 2020 was approximately 55 cents per gallon (cpg) and 3 cpg above the October average. The U.S. propane market price traded between 50% and 59% of the daily WTI crude oil price for the month of November averaging 56%, an increase of 2% when compared to last month.