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Seeking opportunity to secure supplies, lock prices next winter

Cost Management Solutions    
Cost Management Solutions


Propane retailers are still in the throes of getting vital propane supplies to their customers this winter. It is now the homestretch for winter, but forecasts for a cold February mean there is much work still to be done. It is difficult to think past the immediate tasks that must be done. Still, it won’t be long until attention will turn to securing supply and price protection for next winter.

As discussed in last week's Trader’s Corner, propane markets answered an important question this winter that has relieved a lot of the worry about propane prices. Going into this winter, there was great concern that a cold winter and strong export demand would cause a blowout in propane prices at the trading hubs of Mont Belvieu and Conway. However, that blowout never occurred because U.S. propane importers backed off U.S. propane as prices moved higher.

With this knowledge, we think the propane markets will move toward next winter with less anxiety about propane supply and prices. However, that doesn’t mean it isn’t wise to look for opportunity to secure next winter's supplies and lock in prices at good values.

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The chart above shows propane prices since the beginning of February 2017. It shows that prices tumbled coming out of last winter. Of course, that creates a bearish feel to the market, which sidelined a lot of potential buyers.

Inevitably, when prices are down and start to rise, as they did in July 2017, buyers remain on the sidelines. It appears that the earlier lows are in the minds of buyers and they want to see those prices again before stepping into the market.

As the chart shows, prices started moving up in July 2017, but never returned to the levels seen during March through June 2017. Buyers kept waiting, not wanting to believe they had already passed on the best buys for the year.

What follows is about as predictable as rain. Buyers that stayed on the sidelines all summer start feeling pressured at the beginning of winter. Suddenly, there are a lot of desperate buyers in the market, which pushes prices even higher and triggers panic buying.

It seems the bulk of buying in propane markets always occurs as a result of fear and threat. Very little buying seems to occur when the market is providing good values. If last year repeats itself, opportunities to establish good price protection for next winter are likely to come fairly soon.
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If history repeats itself, as it most likely will do, the weakness in prices coming out of this winter will be seen as a reason buying is not necessary, rather than an opportunity.

Retailers that waited until October 2017 to buy for this winter will not have done well on their positions and will resolve not to get price protection for next winter.

They will most likely pass on the opportunities that are likely to present themselves in the next few months. They will then find themselves in the exact same position next year, buying at the top of the market when fear and upward price pressure force them into a defensive posture.

Each year seems to turn out so differently than the previous year. As buyers seek protection from higher prices, retailers must look at when propane is trading at low relative values to crude and well off the previous year’s highs as opportunities.

It is very possible those opportunities for next winter will come when retailers are still focused on finishing this winter or wanting to get away from the pressures of the business for a while.


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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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