As we make our way towards the end of summer and the beginning of grain drying, one word remains on everyone’s mind: inventory. With very little “build season” left, let’s dive into the current propane inventory situation in the U.S.

Inventory builds have been lackluster this summer. As of the July 28 EIA report, the U.S. had 64.5 million bbls on hand. That reading is 24% behind this week last year and 14% behind the five-year average on total U.S. inventory. At last reading, exports came in very strong at 1.5 million barrels per day. Exports have shown readings under one-million barrels per day several times this summer, but never stayed there long enough to make a major difference.

Padd 3 (Gulf Coast) inventory was reported at a total of 34 million bbls. That’s 31% behind this week last year and 18% behind the five-year average. Padd 2 (Midwest) inventory was reported at a total of 19 million bbls. That’s 15 percent behind this week last year and 22% behind the five-year average. We would need to see substantial builds over the next eight to 10 weeks to return to average levels.

So, what has changed in the last year or so? During the shale boom, export dock capacity was not able to keep up with the surplus in inventory, keeping LP prices on the low end for the most part. Now with rising international NGL needs and an expanding export infrastructure, NGLs are getting sent to the water to control any excess and capture spread gains.

That being said, fundamentals are very strong and have been all summer. Pricing at both hubs has shot up over 30 cents in the past few months. The typical seasonal LP price decline in June proved to be non-existent this year, and the run up has been seemingly endless. Backwardation has been a nagging issue since earlier in the year and is expected to return towards the end of 2021. This causes some producers to sell/export inventory vs storing it.

Not only have LP fundamentals helped to drive the price of propane up, but the run up in Crude pricing has also been a factor. Crude has recovered substantially since the Covid lows seen in 2020. The return of demand due to people resuming “normal life” has created major upward pressure.

In conclusion, propane has had good reason to be bullish this year. We will need to pay close attention to inventory builds, or lack thereof, over the next several months to see if the green candles will stick around.

Michael Norris serves as GROWMARK’s manager of propane supply.