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Record strong propane builds following the shift in the summer curve. Will it continue?

29 June 2018 IHS Markit Expert

Based on IHS Markit's current view of balances, fundamental indicators point to propane/propylene inventories ending the summer below "comfortable" levels which historically has led to market tightness and pricing issues in late winter months. With the propane curve in backwardation for the first two months of the summer, inventory building season got off to a slower start as merchant players lacked the incentive to put propane into storage. Builds into storage began to pick up once the curve started shifting in late May, and strengthened further after going into contango in early June.

The market appears to be realizing that record propane production alone may not be enough for inventories to reach "comfortable" levels before the winter starts and is pricing to better incentivize storage builds. As a result, weekly propane/propylene storage activity has been impressive in recent weeks, even hitting new highs for week 8 June, but will these dynamics be enough to push inventories to safe levels by the start of winter?

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This content is part of our IHS Markit US NGL Markets Weekly service. For more information contact omdcsales@ihsmarkit.com.

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