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MARCH 20, 2023 // THIS WEEK'S TOPIC: PROPANE PRICES
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Times When Lowest Monthly Price Average of Calendar Year Occurred Since 1991. (Table 1: Cost Management Solutions Click to expand.)
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It is getting to the time of year when propane retailers are winding down on the current winter and are starting to look forward to the next. Remember that in last week’s Trader’s Corner, we showed the window when propane inventories have their final draw of the year. That window is between weeks 9-17 of the year with week 12 being the average. We noted that the way things were trending, the inventory drawdown may occur on the front side of the window this year. The Energy Information Administration reported an inventory build for week 10. That may not mean there will be no more draws, but when inventories stop drawing or are near that point, we know the focus is shifting to next year’s supply.
During the next few months, many will look for opportunities to place hedges for the upcoming winter. They may do that by putting product in storage, choosing pre-buys, placing financial swaps or options or by a combination of these hedging tools. There is the perception that the cheapest propane prices of the year will occur during the next couple of months. The assumption is that it will be the best time to buy for the upcoming winter. We are about to provide some information that may cause you to question these assumptions.
The first table compiles data back to 1991 showing how many times a particular month had the lowest monthly average of propane prices for that calendar year.
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Take a couple of minutes to study the data. After you looked at the data, we bet you went back to the text and reread what the data is supposed to be telling you.
Over a 32-year span, from 1991 through 2022, the lowest price of a calendar year occurred 17 times in December or January for both Mont Belvieu and Conway. The lowest monthly average of the calendar year occurred more than half the time in the middle of winter. Looking at what is considered the three core winter months, December through February, the low for the calendar year has occurred 18 times in Mont Belvieu and 21 times in Conway.
The summer months, or inventory build period of April through September, have had the lowest monthly average of the year 11 times in Mont Belvieu and eight times in Conway. That’s right, the three core winter months have seen the lowest monthly average price of the calendar year posted far more times than the entire six-month summer period. It sounds like blasphemy. It flies in the face of everything that we hold as truths in this industry, but the numbers are the numbers.
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Times When Highest Monthly Price Average of Calendar Year Occurred Since 1991. (Table 2: Cost Management Solutions Click to expand.)
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Here is another interesting reveal from the data. Look at the fall and early winter period between September and November. The lowest monthly average of the calendar year hasn’t occurred during that period for Conway or Mont Belvieu since 1991.
Now, it’s time to add more confusion. The second table shows the highest monthly averages of a calendar year during the same period.
Look at how many times the highest monthly average of the year occurs during the core winter months. It has happened 14 of 32 times in Mont Belvieu and 17 of 32 times in Conway. Not as many times as the low price of the year has occurred during that time frame, but still the most of any three-month period. Also, look at how many times the higher price of the year has occurred in that late fall/early winter period. There is often a hype at the beginning of winter.
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Keep in mind these looks are for calendar years, not winter periods. One thing that stands out, though, is that we cannot assume one time of year or another is going to be the best time to buy. You must look at the overall conditions and try to anticipate how the market is going to respond to supply and demand conditions. The market swings like a pendulum as producers and consumers react to prices. That is why we tend to jump back and forth between the high and low monthly averages being set during the winter months.
We simply can’t decide in advance the best time of the year to buy our propane. We must let the market tell us. The average spread between the high and low of the year has been 36.1917 cents since 1991. The lowest spread has been 4.511 cents and the highest 125.1534 cents. With those kinds of spreads, it is imperative to buy when the opportunity comes; otherwise we are leaving our customers awfully exposed to market volatility and can hurt our reputation as a reliable supplier. As the data shows, it’s not an easy task due to the volatility. It is not a task you can succeed at by blindly assuming one period of time is always going to be the best time to buy. You can only improve your chances by looking at the data and trying to anticipate how the market is likely to respond to those conditions.
We will look at this data a little more next time.
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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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