Propane Price Insider
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Trader's Corner

This week’s Trader’s Corner looks at propane futures.

Have you already done your Christmas shopping for next year? We know folks who hit the streets the day after Christmas looking for bargains, buying their gifts for family and friends for an event that is 353 days away.

We have a few friends who have already announced their shopping is done for next year. We listen to them with an odd mixture of admiration and loathing. Frankly we can’t even imagine what it must feel like to be that far ahead of the game. We are focused on making sure that we get our taxes done at the last minute.

It was all we could do to get shopping done for this Christmas. It was full of the stress of last-minute shopping as usual. Probably the last thing you would get us to consider immediately after Christmas is more shopping, though we can fully realize the logic and benefits of establishing that discipline.

We know that most propane retailers are like us. Of course, we don’t know how they handle Christmas shopping, but we do know how they handle propane buying. Few propane retailers are even aware that next winter has been scheduled. For most, the focus is firmly, squarely and totally on getting through this winter. There are few other winters we can recall that demanded the full attention of propane retailers like the current winter.

Many retailers are having serious problems finding supply. There are a lot of sleepless nights being logged right now as retailers worry if all of their customers made it through the night without running out of propane. So we know that when most of you realize our topic today is about next winter the likely response is going to be something like, “Next winter, NEXT WINTER? Are you kidding me? NEXT winter?”

Just know that we have a tremendous amount of empathy for your situation and are not blind to the challenges you are facing this winter. But current pricing gives us an excellent opportunity to look at how current propane prices can get disconnected from propane futures. Still, we truly do understand how difficult it is for you to think about “shopping” for next year, no matter what propane futures prices are doing.

Several times a day our subscribers get the table and graphs we will use below. They are known as out month price tables or futures curves.

The table above provides out month price estimates for propane. We provide these estimates based on deals we have done or on conversations with traders. As we captured these tables and graphs, January 2014 propane was trading at 123.25 cents in Belvieu and 143 cents in Conway.

The table above gives the estimated strike prices of swaps or options that a propane retailer would enter into to establish a known cost of supply in the future. There is a column for Belvieu estimates and another for Conway estimates.

Let’s focus one year from now – on January 2015. The estimate is the current market value for propane that month: 112.5 cents in Belvieu and 115 cents for Conway. If one were to believe that current propane inventory tightness is likely to continue into the future it might be prudent to take advantage of the “sales” price of next January's propane.

The purpose of this article is not to discuss the mechanics of swaps and options. However, it is important to note there is little initial money outlay to lock in a swap.

Option premiums would have to be paid up front. For an option 12 months out, you are talking a 16- to 17-cent premium. That is a lot to take, but if you think about it the cost of the option is covered by the drop in propane’s value between this January and next. So if one thought this year’s scenario could repeat, it might not be a bad investment. If you have questions on the mechanics of swaps and options, please call us at 888-441-3338.

Why is propane cheaper in the future than it is right now? Take one last look at the table above in the far right column. That is the value price of crude per barrel in the future.

Note how the price of crude is dropping with each further out month. Propane’s futures price is greatly influenced by the futures price of crude. What happens is that current propane fundamentals like inventory level and weather can greatly influence propane prices in the current month or maybe for two or three months. But, beyond that point, crude futures prices have a greater influence.

The two charts above take the data in the table and put it in quick reference graphs for both Mont Belvieu and Conway.

Most propane retailers probably know of a price that propane is rarely going to fall below in their marketplace, even if wholesale prices fall below that number. Many propane retailers look at these tables and charts and, if they see they can own propane at that number in the future, they will lock at least part of their supply down at a price they know is unlikely to hurt them.

We know it is hard to think about next winter given the current situation. But these tools can allow you to at least “shop” for next year easily. Our clients who use these tools and enter swaps and options on a regular basis can literally transact them in a matter of minutes, from the time they see the price they are looking for until a swap or option is confirmed with a trader. Then they are back to tackling the tough problems at hand.

You may not think you have time to worry about next winter, but in reality taking advantage of propane futures prices like we are currently seeing is not as difficult as you might think.

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

Propane prices used weather and low inventory to resist a fall in crude. However, a lighter-than-expected draw on inventory the last two weeks has caused a little softness in propane prices. This week’s inventory report could be critical for price direction, and we went from bullish to neutral ahead of that report.

Monday: U.S. economic data remained supportive, but that did not keep West Texas Intermediate (WTI) crude from falling below its 200-day moving price average. Propane also fell to start the week despite good support from weather and inventory levels.

Tuesday: WTI crude struggled to find buyers despite more supportive economic news. Conway propane recouped some of Monday’s losses, but Belvieu kept drifting lower. Trading for both crude and propane was light ahead of the holiday.

Wednesday: Markets closed for New Year’s Day.

Thursday: Crude suffered a major selloff to start the year, which saw WTI give up 3 percent of its value. That pushed the U.S. benchmark below all of its moving price averages. Surprisingly propane tumbled with crude, continuing the soft patch for prices into the new year.

Friday: The U.S. Energy Information Administration report showed a below-average draw on propane inventory, which kept the upward pressure off prices. A big draw in crude inventory could not break WTI out of its downtrend.

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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

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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

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Contact us today to see if you can benefit from having the Energy Price Watchdog working for you.

Dale G. Delay 888-441-3338,
Mark Rachal 888-441-3338,

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