I sit next to NGL’s resident ‘logistician’, Adam Nichols. His actual title is ‘Eastern Logistics Coordinator’ but I sort of like to call him a logistician…because he can make numbers tell stories.
The other day I asked him to create a spreadsheet for me that compared propane inventories to monthly average propane and crude oil prices since 1996. His reply? “Challenge Accepted”.
I have attached a screen shot of the resulting chart that came from the numbers (click on it to expand):
The vertical axis is a number…for the blue inventory line, that number is Conway inventory levels in millions of barrels (Gulf numbers tracked similarly). For the red propane line, that is the average price of propane per month over the 17 year period. For the black crude line, that is the average price of WTI crude per month over the 17 year period.
When you see the troughs in the blue inventory line, you will also notice some correlating jumps on the red propane price line. The peaks and valleys are predictable as they are summer and winter related, so there are not any drastic stories to be told there or many inferences to draw.
However, the primary relationship that jumps off the page is that of average propane prices tracking crude oil prices.
This relationship was incredibly parallel 1996 through the middle of 2009. July was the first time in this sampled timeline where propane dipped below crude. The next time we saw this happen was essential the first eight months of the just completed 2013. I’ve referred to this as propane ‘detaching’ from crude oil and we’ve discussed the historic relationship of propane to crude in this recent item I sent to you. Propane ‘reattached’, so to speak, back in September and it’s ‘back to normal’ right now.
When you look at this historic data, with the resend of the historic best times to buy item I wrote in October (linked here) and the relation of propane to crude item I penned the other day (linked here), history is telling us a few things.
-You need to be analyzing prices for next year, now (today is not a good day with the market exploding after inventory draws came out in Conway and Belvieu)
-For this coming winter, prebuy prices are not likely going to get below a dollar per gallon in Conway or Belvieu and frankly, I think the $1.08/gallon Conway/May we were able to offer the other day was a good number that some people bought
-You need to get a number in mind where you want to begin the cost averaging process and either email that to me as a buy order or call me and I can put that buy order on our board, so the traders know what is out there if the market gets close.
As you well know, every year in the propane markets is a different animal…but there are some clues there in the DNA…some hints from the past that can help us make the best decisions for the future. Be prepared to pull the trigger when things settle down from this latest run up (outmonth prices in Conway are up $.07 cents since Monday due to huge inventory draws and wet barrel demand in Conway) , because inventories coming out of this winter are going to be at historic low levels, at least in the Midwest. For those of you farther east and in the Southeast reading this, your pricing realities are going to be similar even though your inventory levels won’t be as challenged as the Midwest.