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Trader's Corner

With this week’s Trader’s Corner, we will begin filling a hedger’s toolbox.

Over the years, we remodeled several houses and worked on other projects. During that time, we accumulated many tools that helped us do the work better and faster. Using the right tools was an essential part of having a successful outcome on any project we undertook.

The same could be said for propane supply management. A toolbox full of the tools necessary to manage supply-side risk is essential for a propane retailer’s success in today’s high-priced, highly volatile marketplace.

Over the next few weeks, Trader’s Corner is going to list the tools you need, tell you when to buy them, how they are best used and reveal a few things about how each tool works.

We may not provide all you need to know to use a tool, but at least you will know the tool is there and what you can do with it. Later, we can help you use the tool and explain more fully how it operates. The goal here is to fill your toolbox and let you know what “project” the tool can help you accomplish.

This week, we are going to put a financial swap in your toolbox. Specifically, we are going to buy a swap. Selling a swap is a different tool with a different application.

Tool: Financial swap

Action: Buy

Buy when you:
  • Desire to protect against rising prices
  • Have little concern for falling prices
  • Expect to be able to make sales against the position
  • Desire flexibility to exit the position early
  • Prefer to avoid option premiums
Best used:
  • To back up fixed-priced sales
  • To limit the risk to higher prices for future sales
  • For base sales volumes you know you will make each month
  • To protect the margin on posted price/will call price/street price from the natural tendency not to raise those prices fast enough in a rising market
  • To reduce the number of retail price changes each month/year
  • To improve margins on budget programs by being able to capture good buy opportunities
  • To help customers control propane costs and protect them from price volatility
Other considerations:
  • Positions settle against the monthly average at the trading hub (Mont Belvieu or Conway) for which it is held.
  • The owner (buyer) will receive the difference between the monthly average at the hub and the strike prices, if the monthly average is higher.
  • The owner (buyer) will pay the difference between the monthly average at the hub and the strike prices, if the monthly average is lower.
  • Credit must be established with the counterparty, otherwise a margin deposit of 10 cents or more may be necessary to establish the position. A margin call is not a fee or expense; it is simply a deposit made to protect a counterparty from accounts receivable risk.
  • Traders of swaps must have a CICI number from the government that is obtained online for a fee of $200.
  • There is little flexibility to lower prices when using swaps; they are very much like a pre-buy in this respect.
  • Falling prices hurt a swap buy position for the retailers unless they have made fixed-priced, budget or other sales to customers or they have the ability to hold his sales price in a falling price environment.

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
Crude prices plunged as traders became less concerned about threats to supply in Iraq and Russia and as more Libyan production looked as if it would make it to global markets. Propane resisted the fall in crude. In fact, Conway prices eased higher on the tight supply in the Midwest. Until crude finds a floor, we will be bearish on Mont Belvieu and neutral on Conway propane prices.

Monday: Low inventory positions in the Midwest had Conway propane higher, while Mont Belvieu fell with crude. Crude traders have become less concerned about supply issues in Iraq and Russia.

Tuesday: Propane prices moved lower in anticipation of a large inventory build being reported by the Energy Information Administration (EIA) on Wednesday. Prospects for more crude production from Libya kept the downward pressure on crude prices.

Wednesday: Propane was down on a bearish inventory report. The EIA reported U.S. propane inventory was up 3.8 million barrels. Crude fell largely on technical trading after falling through key support.

Thursday: Propane rebounded on the strength of the heavy trading volume of local Mont Belvieu propane that may have been associated with the reopening of the Enterprise export terminal.

Friday: Crude prices fell sharply as the downtrend continued and crude traders became less worried about supply issues. Propane prices held up well against falling crude, but still posted losses on the day.

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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.

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  • Periodic Option Quotes
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  • 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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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 Or e-mail

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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LP Gas Magazine

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