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Trader's Corner
This week’s Trader’s Corner looks at heating degree-days through the end of the year.
This past week, we looked at heating degree-days through the end of the year. Those heating degree-days are really where we live as propane retailers. Well, it is where anyone dependent on propane demand to make a living resides.
This winter has been an improvement over last year so far. However, that isn’t saying a whole lot. When we compare any winter to last year, it is hard for it not to look good.
The following data is from the Climate Prediction Center – National Centers for Environmental Prediction (NCEP)-National Weather Service (NWS)-National Oceanic and Atmospheric Administration (NOAA). It is weekly data based on population-weighted state, regional and national averages. Before we look at the data, we would like to show you the map, below, that makes the data table meaningful by showing the defined regions.
Note the map is using the same nine regions used by the U.S. Census Bureau.
Looking at the cumulative totals from July 1, 2012, through Dec. 29, 2012, we see an improvement from last year, but not by much. For the whole U.S., we have only had 12 more heating degree-days than last year.
The distribution has been far from equitable, with the West actually having a worse year than last year. But it would appear that is going to change with the deep cold weather pattern the West is now experiencing.
Through the end of the year, all of the improvement over last year has been in the central to eastern United States. This information is in keeping with what most of you have told us.
This appears to be a classic case of just about anything tastes good to a starving man. With last year’s winter being so poor, it didn’t take much of a winter to be an improvement.
Compared to the norm, this winter was 159 heating degree-days behind on Dec. 29. The South Atlantic and East South Central regions have had the nearest to normal conditions, and they are 53 and 74 degree-days, respectively, below the norm.
When we think of the lack of heat load over the last two years, along with all of the new production, it is not surprising to see propane priced at relatively low values to crude.
But we must always keep in mind that the market is working to resolve supply/demand imbalances. Already we can anticipate there will be more petrochemical consumption in 2013. There should be a significant increase in export capacity. And hopefully at some point we will get a winter that will produce above-normal heating degree-days.
Granted there is much to be done to resolve the oversupply of propane, but as we start a new year remember those forces are at work. We offer these reminders to make sure you don’t trade 2013 as if it is 2012. Propane retailers often trade a year behind. In other words, they tend to trade as if the previous year is going to repeat itself – it rarely does.
Be sure and watch for completion of projects and other things that could affect the supply/demand equation as we go through the year. To this point, the breakthrough in natural gas production technology has caused propane supply to overwhelm demand, causing a devaluation of propane. That devaluation creates opportunity for those who can give producers access to markets that provide a better netback. Don’t underestimate the ability of a free-market system to figure out ways to take advantage of these opportunities.
Call Cost Management Solutions today at 888-441-3338 for more information about how Client Services can enhance your business, or drop us an email at info@propanecost.com.
WEEK IN REVIEW
Crude had an up week on the resolution of the revenue side of the Washington budget crisis.
Propane fell in response to milder weather forecasts.
We go into the week neutral after turning bearish during this last week. Propane managed to rally back on Friday, with the latest EIA data in support.
LAST WEEK'S DAILY HIGHLIGHTS
Monday: Propane prices remained flat to Friday’s close, but crude rallied on renewed hope that Congress would pass a budget bill. Threats to Middle East crude supplies were also supportive, as was an improvement in Chinese manufacturing activity.
Tuesday: Markets closed for New Year’s Day.
Wednesday: Propane prices fell on worries that supportive weather may not be around as long as expected. A new bill passed by the U.S. Congress that avoids higher taxes on most taxpayers helped crude and equities rally. There was additional support from positive data on U.S. manufacturing activity.
Thursday: Propane prices experienced a major decline, as less weather support, less buying by petrochemicals and selling by hedgers applied downward pressure. Crude backed up slightly after minutes of the last Federal Reserve monetary policy meeting were released. The minutes showed more talk of ending the current stimulus or quantitative easing sometime this year.
Friday: A larger-than-average draw on propane inventory helped propane prices halt their rapid slide. Crude could not gain any traction as traders fretted over the national debt, but bounced off a session low of $91.52 to close in positive numbers after a good report on the U.S. services sector.
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