Consider these reasons to buy propane for next winter

March 24, 2021 By    

It is the middle of March, and spring is in the air. Propane retailers are mostly just exhausted at this point, not unlike professional football players finishing up a long, grueling season. It is nearing time to rest and recuperate. Perhaps there will be time to get reacquainted with spouses, children and other family members. Hollywood could save a lot of money on zombie scenes simply by filming propane retailers in March.

The good news is the offseason will be short, and you’ll get to do it all over again in just a few months. If that thought generates involuntary tics, twitches and mumbling, don’t worry. These usually subside in the 24-hour period before the next heating season begins.

Since we are about to explore if it is a good time to buy propane for next winter, we want to acknowledge that we understand it is the last thing you want to think about at this point. Think of us as a coach in that respect, making you run that last wind sprint “for your own good” as we sip water because blowing the whistle has dried our mouth.

The first thought might be if we even need to consider price protection for next winter. At this time last year, Mont Belvieu (MB) propane was trading at 24 cents and Conway at 22.5 cents. We looked back at our daily report for March 18, 2020, and saw that an October 2020 through March 2021 strip of propane could have been bought under 40 cents per gallon. If we weren’t considering next-winter propane price protection at this time last year, perhaps we should have been. In fact, the year’s low price occurred on March 23, 2020. Hindsight is so cool, isn’t it?

Of course, propane prices are in a totally different place this year. Front-month propane, despite a significant pullback recently, is about four times what it was last March. A winter strip for October 2021 through March 2022 is around 80 cents, about double where it was last March. The energy sector gets its base from the value of crude. Last year, West Texas Intermediate (WTI) crude was $20.37 per barrel. It is about triple that today.

So front-month propane is up times four and crude up times three, while propane for next winter is up times two. That in itself might be a reason to consider buying next-winter propane. We know: Locking in 80-cent propane at the trading hubs of MB or Conway for next winter doesn’t sound very exciting. It feels like, what, twice as risky as buying 40-cent propane?

Okay – we will let you off the hook. Right this moment might not be the best time to buy propane for next winter. Propane is in a downtrend and, so far, it hasn’t shown signs it is ready to stop. We should probably at least wait for the current downtrend to end before we consider buying next-winter price protection.

But we should also let go of the thought that propane prices will return to anywhere near where they were last March at any time before this coming winter. Let’s consider a few reasons why:

  1. During calendar year 2020, propane inventory declined 9.490 million barrels. As of the latest U.S. Energy Information Administration report for the week ending March 12, inventory is at 41.029 million barrels, which is 20.35 million barrels, or 33.2 percent, below where it was at this time last year.
  2. Commodities broker and investment banker Goldman Sachs believes that Brent crude will reach $80 per barrel this summer, which is about $17 per barrel higher than it is now. WTI crude has been trading between $3 and $3.50 below Brent, so it would reach about $77 this summer if Goldman’s prediction is correct. It is currently at $60.50.
  3. Goldman’s bullishness for crude is largely based on the assumption that global economic activity will be getting closer to normal as the year progresses, increasing energy demand. Meanwhile, U.S. crude production has been holding about 2 million barrels per day lower than last year and isn’t showing any signs of closing the gap at this point.
  4. While propane prices in the front month have been coming down sharply during this month, the price of a winter strip hasn’t changed much. In fact, if there has been any movement, it has been up. We had seen a winter strip around 77 cents, and now it’s around 80 cents.
  5. The current administration is not supportive of hydrocarbon production. We can expect a stricter regulatory environment and higher cost for hydrocarbon production.

We see why anyone would be hesitant to jump on 80-cent propane for next winter at this point. Front-month prices have been coming down, which feels bearish (even though the winter months haven’t been dropping). Propane inventory has dropped only marginally the past two weeks and has been below the five-year average draws. Even though crude and natural gas production has not returned to pre-pandemic levels, propane supply has and is setting five-year highs.

There have been concerns about the speed of economic recovery from the pandemic. Our government is in debt beyond anything it seems we might ever pay down. While that debt is likely to fuel inflation and be bullish for energy prices, it could slow down economic activity and, in general, makes us feel cautious about the future.

Still, be aware that the fundamental conditions for propane and crude are much more supportive of propane prices this year than last year. The conditions are certainly present for a higher price environment than last year. Keep a close eye on those winter prices and the out-month values for crude. Watch for any slips on propane production or increases in propane exports that limit inventory gains. If the inventory deficit from last year doesn’t continue to improve, biting off a little 80-cent propane for next winter might not taste as bitter as we imagine.

Call Cost Management Solutions today for more information about how client services can enhance your business at 888-441-3338 or drop us an email at

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