Propane users are definitely feeling the pain as the shortage grew from 18 states to 35 states last week with more cold weather on the way. Propane prices in Iowa spiked 83% last week alone. Nationwide prices were up +43% for the week.
Propane prices are at record highs thanks to wave after wave of frigid weather. Customers in those 35 states are being asked to take delivery of the bare minimum to get them through the next four weeks in order for the available supplies to be delivered to the most people.
Propane inventories declined -832,000 barrels to 30.842 million. The days of supply actually ticked up slightly from 18.5 to 19.1. Inventories in New England declined to 172,000 barrels and considering the cold weather they are going to get this week that is a real problem. The majority of the inventory is on the Gulf coast states with 17.671 million barrels. There is no way to move it north in a hurry. The governor of Texas has relaxed transportation rules to allow the faster loading and shipment by truck but that is like trying to put out a house fire with a water gun.
This map shows the low temperatures on Tuesday nationwide and it is only going to get worse for those in the Northeast.
Natural gas prices spiked to $5.737 intraday and that is a highest price since 2010. The spike came after the -830,000 barrel decline in propane inventories. The strong decline suggests natural gas could show a draw from storage in the -250 to -275 Bcf range. With gas inventories at 2,193 Bcf another couple weeks of major declines could put us at risk of running out of gas before spring. With another winter storm moving into the Midwest this week and then moving to the Northeast the gas demand for electricity and heating is going to be huge. As you can see in the map above the temperatures for the current cold front pushing into the U.S. are extremely cold. This could be the coldest week so far this year and we just left the coldest January in 30 years.
However, several analysts believe today's spike could have produced a double top and the buying intensity will fade. They claim the expectations for six more weeks of winter weather are already priced into natural gas. Unless this turns into the coldest February in 30 years the rise in gas prices should be over.
The losers in this scenario are the homeowners. With gas prices more than doubling over the last two years from $1.94 to $5.73 every utility bill is going to be a shock. My daughter said her bill doubled from normal in just the last three months. I know people who can't afford to fill their propane tanks and are relying on electric room heaters to keep their home livable with the propane furnace set on the lowest possible setting just to keep the water pipes from freezing. My nephew has his thermostat set on 50 because that is as low as it will go after spending $3,500 on propane already this winter compared to $1,250 this time last year.
The spike in natural gas will produce the same bill shock only it will come in the electric bill for many homeowners. As utility companies are forced to use more gas to meet the high demand for electricity the fuel adjustment charge on the electric bills is going to be huge.
If you want to trade gas futures the cost went up today. The margin went up +10% due to the recent volatility in prices. Options on gas futures have seen a 39% spike in volume. They set a single day record of 75,778 contracts.
Crude oil inventories rose only +400,000 barrels for the week and remain -3.7% below year ago levels. U.S. production was flat at 8.04 mbpd as a result of the cold weather preventing new completions and creating production problems on existing wells. When the temperature is below zero equipment tends not to work very well. It was -16 below in Denver last night and those kinds of temperatures cause havoc in producing and transporting oil. States north of Colorado are in the deep freeze and that means the Bakken is having trouble as well.
Distillate inventories declined by -2.4 million barrels and the fourth consecutive week of declines. The internal components for distillates showed that jet fuel declined -1.3 million barrels and home heating oil/diesel declined -1.6 million barrels. Those don't add up to 2.4 million because there are other classes on oil in the distillate classification. Distillate inventories are -12.4% below year ago levels.
Gasoline inventories rose slightly by 600,000 barrels to 235 million. Gasoline inventories are flat with year ago levels.
The real shocker for the week was the drop in crude imports from 8.05 mbpd to 6.89 mbpd. That is -1.16 mbpd or a whopping 8.12 million barrels for the week. With that big of a drop in imports I would have expected a big decline in crude inventories. However, refiner inputs dropped -370,000 bpd and refinery utilization declined -2.1%. That suggests the winter surge in refining is peaking.
Gasoline demand declined by -130,000 bpd. Distillate demand fell sharply by -580,000 bpd. That is huge but probably a result of all the cancelled airline flights over the last two weeks.
The cold weather in the Northeast produce more demand for natural gas than the capacity to transmit it. This caused the spot price for gas to move over the cost of distillate fuels on a btu basis and prompted some utilities to shift to fuel oil for electrical generation.
Over the last decade the use of fuel oil over natural gas has been negligible because it was cost prohibitive and the weather was not dramatic enough to exhaust natural gas capabilities. In 1973 as much as 17% of electricity was generated with oil. That has declined to less than 1% in recent years. However, there are 7 gigawatts of power in the region that is oil fired only. In a backup situation this can be used to offset the decline in gas supplies.
The EIA said, "Last month, the Independent System Operator New England (ISO-NE) estimated that 24% of overall generation in its area was generated using oil on January 23-25." This is a huge uptick in oil generation.
In New York City regulators can force curtailment of gas use by other customers to allow for power generation to run at maximum capability.
We hear all the time that we have 100 years of natural gas but it will not do us any good if the infrastructure is not improved to get this gas to market. Consumers in the Northeast are not going to switch from heating oil and propane if natural gas supplies are not guaranteed. This will require larger pipes from the producing locations and larger pipes from the network infrastructure to get that gas from the major pipelines to the consumers.
The markets are still weak with the Dow down over -100 points intraday and the S&P returning to test new support at 1,740. The Nasdaq spent most of the morning under 4,000.
While the market failed to close at the lows and recovered most of its losses it should still be viewed as weak. There is good chance we will retest the lows or worse.
I would be skeptical of any rebound until the S&P is back over 1,800. If you have the capability to day trade you might want to nibble on longs over S&P 1,760 just in case a rebound appears. Some analysts view the hold at the 1,740 level for two days as bullish but I would like to remind everyone it held at 1,770 for five days before that support collapsed.
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