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NOVEMBER 30, 2021 // THIS WEEK'S TOPIC: PROPANE PRICES
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In our last Trader's Corner, we looked at the major correction that was going on with propane prices. We believed it was still a buying opportunity. Just after that report was released Nov. 22, propane prices started jumping rapidly. Nov. 22 MB LST closed at 108.25 cents and Conway at 106.5 cents. By the Wednesday before Thanksgiving, MB LST and Conway closed at 121 cents.
At that point, we thought we had the topic for this week's Trader's Corner. We thought we would spend the entire article pointing out how brilliant we had been by suggesting the pullback was a buying opportunity. Thankfully, due to the holiday, we didn’t get a chance to write this TC until yesterday. Otherwise, you would currently be reading our braggadocious self-flattery about predicting the rebound in propane prices.
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Instead, you will now never know our original thinking for this article and that we were as full of it as a Thanksgiving turkey. Nope, we have avoided completely the embarrassment of being considered as nutty as a fruitcake. Instead, we can slyly pivot to the more-than-$10-per-barrel drop in crude’s price on Friday, slant it as we knew it was coming, and come out smelling as sweet as pumpkin pie. Timing is everything, you see.
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As we write Monday morning, MB LST is trading around 113 cents and Conway 114 cents so, yes, there is still some of the rebound we predicted left, but much of it is gone. Meanwhile, crude is struggling to rally from its major slump, and weather forecasts are showing more above-normal temperatures on the horizon. It feels like propane could just as easily drift back to prices seen before the big pre-Thanksgiving bounce.
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Crude crumbled last Friday over concerns about the new COVID-19 variant called Omicron. It is so hard to predict markets with these types of variables in them. This new variant concerns market participants as the potential lockdowns from it could cause crude-demand destruction. Thus, the near panic in the market that caused the massive drop in crude’s price.
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Since propane hadn’t traded since last Wednesday, it is now trying to catch up to what has happened to the general energy market, specifically crude. After the initial drop on Monday morning, propane prices have been firming up a bit, so it doesn’t look like a total collapse here.
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We still like this situation as a buying opportunity and would, at the least, institute the one-month-at-a-time coverage we have discussed in previous Trader’s Corners. It's time to set those up for December. Remember, you set the price of a swap for December, and you set your sales prices based on that swap strike price. If propane prices drop, you must hold your price for the month of December firm, but you have eliminated getting your margin hurt by a big rebound in prices during next month.
Remember, with the mild winter we have going on, the primary goal is to protect margins on the gallons that we do sell.
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About 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.
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