I have joked before in this space that it’s rare to find a ‘salesperson’ who will present any bearish information, because bears don’t sell.
While that may be true for ‘today’, my view of my relationships is that they are not for ‘today’ but hopefully for many years to come. I also have enough confidence in myself to believe that I don’t ‘have’ to sell people today because they will find enough value in what I do to do business with me in the future when the time is right.
Sooooo…I came across THIS ITEM talking about some bearishness in crude oil. From the linked article:
“The oil trade looks very crowded. The latest data from the U.S. Commodity Futures Trading Commission show that speculators held a net-long position—betting light, sweet crude oil prices would rise—of about 380 million barrels on the New York Mercantile Exchange as of March 18. That is close to the all-time peak reached earlier this month. Bets on stronger U.S. oil prices rose through last year, but got an extra leg up as trouble flared in Ukraine. Yet this particular crisis looks, if anything, bearish for oil. It reinforces uneasiness over emerging markets, the center of growth in oil demand. And oil inventories aren’t that low at second glance.”
All of this underscores why it’s important to cost average…take smaller bites to where you blend things in, hopefully on the way down, and you’re typically going to turn out alright.
I will add this; I think the prevailing prices right now for fall and winter will be good numbers by the time we get to fall and winter. I am not going to say this is the bottom for the year but I would say the high for the year will be in excess of what you can lock in right now..which I think is a great thing. It means we are working from a position of confidence and strength.
This, from Wednesday’s inventory report:
“Propane inventories experienced a draw of 500,000 to 25.7 million in the week ending 3/21/14, as reported by the Energy Information Administration. Current inventory is 15.1 million below last year’s inventory level at this time and 6.8 million below the 5-year average of 32.5 million.”
15.1 million below last year at the same time…that’s a lot. One year ago, while the winter was lingering and February and March were strong for demand, we were still choking on propane inventories. We saw levels peak at 75.6MM in September of 2012. If that number sounds huge, it’s for good reason; the only time national propane inventories were higher than that was in September of 1986.
1986! Here are some things that happened in 1986
-Birth of the Iran-Contra affair
-The first Space Shuttle Disaster
-Mike Tyson became heavyweight champ for the FIRST TIME
-The Oprah Winfrey show BEGAN
-The Chernobyl disaster occurred
-The average cost of a new house in the United States was $89,430
-The Chicago Bears won the Super Bowl…ANCIENT HISTORY!
– Top Gun was the highest grossing film of the year
-The internet didn’t exist for the public and cell phones looked like this:
Now, that guy looks like this:
You get the picture.
Last year, we built from a low of 39.7 to a high of 67.0, or 27.3MM. If we have a similar build this year, from an end of February low of 27.2MM? That’s around 54.5, levels we haven’t seen in September since the 1990’s. We saw September of 2007 with 59.1 and September of 2008 with 58.1. But we didn’t have the export facilities then that we do now. Remember last spring and summer? The exports were flying out of the country and that was the dominant storyline. In mid-June, we saw prices in the Midwest in the high 70’s and 80’s in Conway…then the exporting realities came into focus and prices rose for two months. That was with inventories in the 50’s and 60MM ranges!
Then add into all of this…..EL NINO!
It’s not just a propane salesman’s theory anymore…it’s coming..and I think a significant grain dryer year could in the offing…and if that happens, with where the inventory situation may be?? Think of how crazy things got this past year, which was a ‘good’ grain dryer year and we had inventory levels that will wind up being better than what we will have this fall?
El Nino tends to bring a milder winter pattern to the Midwest. I’d evaluate taking longer positions that can be lifted early 4Q14 with the optionality to roll into 1Q14. COST AVERAGE…and starting now won’t hurt you.