Examining the March–May propane price pattern

Propane has certainly been bullish in the last 10 days. There is an interesting propane price pattern that retailers may want to consider, which is revealed below. Following will be a series of charts showing Mont Belvieu LST closing prices for the last three months.

The chart above shows the closing prices for Mont Belvieu LST during March. Prices fell in the first week of the month and then rallied very sharply during the second week. The low for March was 73.625 cents, and the high was set on March 15 at 82.875 cents. Prices were more volatile, but were relatively flat for a majority of the second half of the month. Some prices tailed off toward the end of the month.

The late weakness in prices in March carried over to April, and the price eventually fell to 73.875 cents on April 4, which was very close to the low at the beginning of March. Once again, after the first week of the month, prices rallied — this time the upward momentum carried through nearly the end of the month. The difference may be due to crude prices falling at the end of March, while they were rising to neutral through the end of April. The high for April was 95 cents, which was 12.25 cents higher than March’s high.

A similar price pattern has been posted in May. Prices were weaker during the first week of the month, falling to a low of 85.6875 cents. Since May 8, propane prices have been in a strong upward trend. Propane prices began to slip on May 18 — they were down about 2 cents from May 17. That raises the potential for a propane price pattern to develop, like March, where prices were mostly neutral in the second half of the month and dipped at the end of the month.

Something was putting pressure on propane prices in the beginning of the second week of the month. In March, the pressure lasted a week; in April it continued until the end of the month, while May is yet to be decided. In all three months, price weakness developed in the first week of the month.

There is the potential this pattern is caused by short covering. A major player, or players, could have committed to sell propane at a certain price in the future without securing the supply at the time, anticipating lower prices in the future.

Since the lower price environment never developed, those short are forced into the market to cover commitments. If this is the case, those purchases would lock in a loss, making the tendency to wait to cover in hopes the market will turn lower. That could be the reason prices soften in the first week of the month.

But, with crude strong, well-supported traders may be accepting the pullback in the first week of the month as the best opportunity to cover their short positions. Their buying starts the upward pressure on prices, which is then likely joined by panic buying by others. This exacerbates the upward price pressure.

Certainly, the price trend may not be caused by short covering. It may have something to do with timing of export activity.

Of course, there is no guarantee prices will soften at the beginning of June. If they do soften, prices may not be any lower than they are now, but it still is worthwhile knowing the price trend is in play.

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