Twenty-four states are currently under Hours of Service Exemptions (click here for the list) as the propane crisis continues. The upper Midwest has seen the greatest impact, first with very high demand for dryer fuels and then with high demand for home and commercial heat amid bitterly cold weather.
EIA reports a 1.5 million barrel drawdown on Midwest inventories during the week ended Jan. 10, but the trouble started months ago. According to EIA, "At the beginning of November, the corn harvest in the Upper Midwest (Minnesota, Iowa, Wisconsin, Nebraska) pulled large quantities of propane from distribution terminals for corn drying. Between late-November and December, supply disruptions prevented these terminals from replenishing their supplies of propane.
For the week ending November 1, 2013, Midwest propane inventories dropped more than 2 million barrels, the largest single-week stock draw in November since 1993. With the onset of severely cold weather this past week, propane supplies are extremely tight, forcing emergency measures to ensure supply and increasing the Midwest spot price of propane at Conway, Kansas compared with the spot price on the Gulf Coast at Mont Belvieu, Texas. Propane prices in the Midwest will likely need to rise to keep propane in the region rather than flowing south to the Gulf Coast.
Because global prices for propane are significantly higher than U.S. prices, propane supplies will continue to move to Mont Belvieu for export. Midwest propane prices will rise to keep marginal supplies in the region when they are needed.
The Midwest will also need to prepare for the coming reversal of Kinder Morgan's Cochin Pipeline, which delivers HGL from Canada to the upper Midwest. Kinder Morgan plans to reverse the flow to deliver light condensate to Canada. This reversal will change supply dynamics in the Midwest. However, this situation may also improve the economic prospects for infrastructure projects to process and transport HGL from the Bakken formation in North Dakota and Montana to Midwest markets farther east," according to EIA.
The report does not bode well for future prices. Export prices discourage domestic utilization and the loss of Kinder Morgan's Cochin Pipeline will keep supplies tight, particularly in the upper Midwest.
Crude Oil --
February 2014 WTI crude oil opened this morning at $94.29, currently lower at mid-morning at $94.00. Strong resistance lies at $94.64 -- a level the contract has twice tried to violate in the last two days. A move above $94.64 would make $95.75 bulls next target and beyond that, $99.00. Next support is at $91.50 and below that, $91.25. A violation of these levels would suggest downside potential to April 15's low at $85.61.
U.S. crude inventories fell 7.7 million barrels to 350.2 million barrels -- now 10.1 million barrels below year-ago.
March 2014 Brent crude oil futures opened today at $105.86 and chopped higher through mid-morning, currently up 17 cents on the day. Next support lies at $105.09. A move below those levels would suggest downside potential below $103.00. A violation of $106.61 has been a tall order for the contract in the last five days, bouncing crude lower in all but one of six attempts to move above. Look for fresh resistance in the event Brent moves above $106.62 at $108.75.
The WTI/Brent crude spread narrowed $1.92 on the week to $11.57 at the open, with Brent on top.
Home Heat --
- Residential heating oil 2 cents lower on the week to $4.00/gallon.
- Wholesale heating 2 cents higher on the week at $3.09/gallon.
- Residential propane firmed 1 cent to $2.84/gallon.
- Wholesale propane 2 cents higher to $1.71/gallon.
Gasoline steady, highway diesel lower, farm diesel makes upside break.
The U.S. average retail price of regular gasoline decreased less than one cent to remain at $3.33 per gallon for the third consecutive week as of January 13, 2014, two cents higher than last year at this time. Prices increased three cents in the Midwest and Rocky Mountains, to $3.25 per gallon and $3.15 per gallon, respectively, while decreasing in all other regions of the nation. The East Coast price fell three cents to $3.41 per gallon, and prices on the Gulf and West Coasts both were down two cents, to $3.11 per gallon and $3.53 per gallon, respectively, according to EIA.
The national average diesel fuel price fell two cents to $3.89 per gallon, a penny lower than last year at this time. Prices decreased in all regions of the nation, with the largest decrease coming on the West Coast, where the price fell four cents to $4.00 per gallon. The Midwest price was down three cents to $3.85 per gallon, and both Gulf Coast and Rocky Mountain prices lost two cents, to $3.78 per gallon and $3.89 per gallon, respectively. The East Coast price was $3.94 per gallon, a penny lower than last week, according to EIA.
Farm Diesel firmed 2 1/2 cents on the week, currently at $3.35 1/2. This week's lowest farm diesel was reported in the state of Indiana at $2.86/gallon with the high mark in South Dakota, still at $3.55.
Your Inputs Monitor issued a regionwide alert yesterday to get current on farm diesel to 50% covered for spring. Click here for the alert...
U.S. propane stocks fell by 3.8 million barrels to end at 38.7 million barrels last week, 25.3 million barrels (39.6%) lower than a year ago. Gulf Coast regional inventories dropped by 1.9 million barrels and Midwest stocks decreased by 1.5 million barrels. Rocky Mountain/West Coast inventories decreased by 0.2 million barrels, and East Coast stocks fell by 0.1 million barrels. Propylene non-fuel-use inventories represented 9.1% of total propane inventories, according to EIA.
LP moved 7 3/4 cents higher in this week's Inputs Monitor Index to $2.08 3/4/gallon. The lowest priced LP in our index is in Iowa at $1.82 while the high mark is at $3.04 in Indiana.
The national distillate supply fell 1.0 million barrels to 124.0 -- now 8.5 million barrels behind year-ago.
Graphs and indicated text provided by EIA.