 |
|
|
 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Click here for a free, 10-day trial of The Propane Price Insider!
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.
Trader's Corner
This week’s Trader’s Corner looks at propane supply and demand.
In the world of commodities, price is set by supply and demand. If there is too much supply or too little demand, prices will reflect it by going lower. In the case of propane these past few weeks, both a lack of demand and higher supply have driven prices lower. First, the supply side.
Of course, propane supply is both what we produce for ourselves and what we import. Our focus is on U.S. production because it is rapidly increasing. All of last year, U.S. propane production set a new five-year high for each week (as shown by the blue line in the chart above). The gray area in the chart defines the five-year high and low levels of production. As you can see, the top of the gray line and the blue line are the same, indicating the new highs set all of last year.
When we update this chart next year, the gray line will move up to where the red line is now. The red line is 2014 production and once again, production is setting a new high for each week of the year. At this point, it looks as if production will set new five-year highs in each week of this year. In fact, over the past couple of months, production has really jumped higher.
We all knew that growth in propane supply was expected, but in March, production was not too much higher than last year. But since about mid-April, U.S. propane production has risen sharply, contributing significantly to the sudden sharp rise in propane inventory over the past seven weeks.
At the same time propane production has been on a tear, propane demand has significantly lagged.
Propane demand has been lagging ever since the price spike this past winter. For the most part, demand has been below average since prices got out of control. If there has ever been a testament to why it is important to use hedging tools and any other assets to protect propane consumers from higher prices, this would be it.
When we have those kinds of price spikes, it is devastating for demand, and as the chart shows, for a long period of time. In fact, over the past two weeks, propane has set new five-year lows for demand. Part of the reason for the exceptionally low demand over the past two weeks could be a reduction in exports due to maintenance work on a major export facility on the Gulf Coast.
Although that work was supposed to be at the end of the month, it appears preparation for it has already affected exports over the past two weeks. If, in fact, exports continued normally during this time, when the maintenance work actually begins, new five-year low demand levels are likely to be set for a while longer. In that case, one could easily see demand below 600,000 barrels per day (bpd). Petrochemicals are certainly doing their part by only consuming 300,000 bpd, or about 200,000 bpd less than they were this time last year.
By combining the supply and demand data, it is easy to see how propane inventory has been building at an exceptionally high pace over the past seven weeks. In the past seven weeks, propane inventory has increased 19.7 million barrels. The five-year average change for this period has been 10.5 million barrels.
The 9 million barrels in above-normal inventory build over that seven-week stretch has erased a deficit in inventory coming out of winter, and along with it, erased concerns about supply going into this coming winter. As a result, propane has seen a drop in both nominal and relative value.
In a two-week stretch from mid-May, propane prices dropped about 5 cents per gallon. Since propane was falling at a time crude prices were rising, it dropped in relative value to crude. A barrel of propane was trading at around 45 percent of a barrel of West Texas Intermediate (WTI) crude at the beginning of May and a month later is at 40 percent.
So far, propane sellers have drawn a line in the sand, not allowing propane’s relative value to drop below 40 percent of WTI, even in the face of two exceptionally high inventory builds during the past two weeks. But if supply and demand continue to trend as they have during the past seven weeks, it will become a more difficult relative price level to defend.
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 prices shot higher due to a Sunni uprising that threatens crude oil supplies from Iraq. Propane moved higher with crude, despite rising inventory.
LAST WEEK'S DAILY HIGHLIGHTS
Monday: An increase in Chinese exports caused crude to rally. Propane moved higher with crude.
Tuesday: Propane sellers continued to hold the line on propane at a 40 percent relative value to WTI crude. Propane moved with crude throughout the day. Crude was volatile, but getting plenty of geopolitical support.
Wednesday: Propane prices fell after the Energy Information Administration reported a 3.439-million-barrel build in U.S. propane inventory. Prices moved off of session lows by the end of the day, despite the build to hold above 40 percent of WTI crude.
Thursday: A major rally in crude prompted by a Sunni uprising in Iraq pulled propane higher. Sunni rebels took control of Iraq’s second largest city, with plans to move on Baghdad. Apparently, the overall goal of the group was to establish an autonomous territory covering large areas of Syria and Iraq.
Friday: The crude rally lost some of its steam, as it appeared traders were looking for new developments in Iraq before making their next moves. Propane prices didn’t move much on the day, but did manage to stay up with crude.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST MANAGEMENT SOLUTIONS
Cost Management Solutions LLC (CMS) is a firm dedicated to the analysis of the energy markets for the propane marketplace. Since we are not a supplier of propane, you can be assured our focus is to provide an unbiased analysis.
Market Information Services
The Propane Price Insider, an e-mail service that provides:
-
Three Daily Price Flash Wires
-
Periodic Option Quotes
-
Wednesday Inventory Data Updates around 11 a.m. ET
-
Evening Report with Executive Summary, Trader's/Hedger's Corner, Weather maps and complete review of energy prices that are based on Propane's Btu Equivalent
Free trial!
For a free 10-day trial subscription by e-mail, sign up online here or call toll-free at 888-441-3338.
Client Services
Many retailers simply don't have time to analyze the large amounts of data to make an informed purchasing decision.
We offer:
-
Detailed market recommendations on hedge and pre-buy entry points
-
Prompt market execution of hedging strategies
-
Supply cost analysis and recommendation as to effective hedging strategies
-
Because of the volume of transactions we place annually, we receive large volume consideration when we place your hedges
Visit us online at www.propanecost.com. Or e-mail info@propanecost.com.
Contact us today to see if you can benefit from having the Energy Price Watchdog working for you.
Dale G. Delay 888-441-3338, ddelay@propanecost.com
Mark Rachal 888-441-3338, mrachal@propanecost.com |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
