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Trader's Corner
This week’s Trader’s Corner looks back at 2012 propane prices.
As 2012 nears its close, propane prices are on a fairly strong uptrend. But even with this late surge, propane prices are well below where they were at this time last year. On Dec. 28, 2011, Belvieu propane closed at 139.375 cents and Conway at 115 cents. Currently Belvieu is trading around 90 cents and Conway at 84 cents.
The difference is 49.375 cents in Belvieu for a loss in value of 35 percent. Conway is lower by 31 cents or 27 percent. WTI crude, on the other hand, is trading only $8.19 per barrel or 8.2 percent below where it was at this time last year. This much discrepancy shows clearly the fundamental changes for propane supply and demand.
Of course, the current prices do not give the full story, as they are well off the lows of the summer. The highs for this year were set on Jan. 3, the first trading day of the year, at 140.375 cents Belvieu and 114 cents Conway. The low of the year came on June 1 for Belvieu at 71.5 cents. The low for Conway came on June 25 at 51 cents.
That was a 68.875-cent spread between the high and low for Belvieu and constituted a drop in value of 49 percent. Conway fell 63 cents for a jaw-dropping 55 percent decline in value. The chart below shows the year’s price history.
If one were lucky enough to have pulled the trigger on this winter supply in the June and July period, it has probably worked out okay. But we must remember that even then producers were very aggressive in selling their winter barrels. The selling price for a winter strip during June and July averaged 89.821 cents in Belvieu and 75.481 cents in Conway.
So even if a retailer was astute enough to have bought the average over the best buying time of the year, he is just now in the black in Belvieu and is not up significantly in Conway. Of course, there were a few days during June and July that would have lowered those buy numbers, but the window was narrow indeed and came in early June. Not many were willing to pull the trigger too quickly after such a sharp fall and with inventory numbers looking bearish.
More prevalent were purchases during two other times of the year. There was buying interest during the April-to-June pullback. That is often a good time of year to buy, and the prices relative to the previous year were looking good. Aggressive buys early in that decline haven’t worked out too well. There was a lot of buying interest when propane was in the midst of its rebound from those summer lows. As usual, that September-October rally pressured a lot of folks into buying pieces of supply.
When we start to see 60- to 70-cent spreads between the year’s high and low, the opportunity to make a bad buy is dramatically increased. With the way the pricing trended this year, it has been hard for anyone to win big, even in what seemed to be a good buying environment.
To combat this environment, we have been working hard to help our clients by providing them with the tools and support they need to identify shorter-term buying and selling opportunities. Buying our supply on just a few purchases a year and hoping those positions hold up well through the winter is becoming tougher by the year.
A more systematic trading approach can work better for some who have the tools and information to capitalize on market volatility. If you would like to discuss the cost/benefit of becoming one of our clients, it would be our pleasure to speak with you about this coming year.
We hope you have a joyful and blessed New Year.
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 used threats to Middle East supplies to defend itself against the failed budget negotiations in Washington.
Propane continued to benefit from cold weather to post another week of solid gains.
The EIA data on Friday was not supportive of propane or crude, but neither saw a lot of buying pressure as a result. We will remain bullish to start the week.
LAST WEEK'S DAILY HIGHLIGHTS
Monday: Trading activity was light ahead of Christmas, but weather pushed propane higher. The lack of progress in the federal government budget talks had crude slightly lower.
Tuesday: Markets closed for Christmas.
Wednesday: Huge surge in propane prices as winter storms across much of the country encouraged buying. Threats to supply in the Middle East pushed crude up sharply. Growing tension in Iraq between the Shi’ite-led government and Sunnis and the uncovering of a cell of United Arab Emirates and Saudi Arabia citizens planning terrorist attacks in those countries and neighboring states were the key factors.
Thursday: Propane prices continued their climb higher as temperatures dropped. Expectations that the U.S. government would not be able to pass legislation as an alternative to year-end tax hikes and government spending cuts kept crude under wraps.
Friday: The holiday-delayed EIA report was bearish overall, holding crude prices on a fairly flat trajectory. Propane generally surged off a very light inventory draw to hold on to most of the week’s strong gains.
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