I recorded a video with Michael Clark from BAMWx.com a few days ago and sent it out to Propane Buzz subscribers.
Clark and I will be putting together a comprehensive Winter of 2018-2019 webinar for all readers of the Propane Buzz, and you can look for that in early October.
We are rapidly approaching the time of year when a good portion of my writing and content will shift to winter weather, weather outlooks, heating degree day expectations and more…these are the bones on which I built this brand and I hope to have many of you along for the ride this winter. You can opt for a monthly subscription through the heart of your busy season and enjoy the benefits that our service can provide…and that service extends into the first quarter of 2019, when much of what I write will be market analysis to help my clients make the best and most informed purchasing and supply management decisions as we all begin to take a very hard look at your 2019-2020 supply needs.
Back to the topic at hand; The Winter of 2018-2019.
Here is a link to the video discussion I recently had with Clark. We get into the weeds in this video, as it’s about 12 minutes long. What follows right now is a written depiction of our discussion.
EUROPEAN MONTHLY MODEL: The Euro monthlies take a computer generated look out into the future, and while the Euro model has been the best long-rage performing model for some time, but basing your winter forecast solely on computer model’s is a fool’s errand.
Here is what the Euro’s 500 millibar Dec-Jan-Feb projection is:
The fingerprints of this projection align with what BAM and others are beginning to see for this coming winter; latitude blocking in Canada and the Arctic, with lower heights in the east and southeast. Clark explains more of this on the video, but the bluer shaded areas would indicate chances for colder weather this winter.
Clark did warn that the modeling, along with their internal data and research (again, explained in the video and which I find very interesting) suggests a warmer start to the winter could be on tap, with above normal temperature anomalies in December. Clark mentioned 2003, 2007, 2012 and 1994 as being analog years that are looking like favorable comparisons, given the overall expected state of our atmosphere this coming December, and comparing it to years where similar atmospheric drivers were in place…here is what those Decembers yielded:
Also, Radiant Solutions (formerly known as MDA) released their preliminary winter forecast back on August 23rd. Here was their month by month look at the upcoming winter:
On the whole, Radiant expects a North American winter, on a Gas Weighted Heating Degree Basis, to be a little colder than last winter, but not much. Here is the Dec-Jan-Feb projection from Joe Bastardi’s team at WeatherBell.com, which he shared publicly two days ago:
The WeatherBell look closely resembles the Euro 500 millibar look.
Lastly, here is a preliminary idea on what BAMWx.com is seeing for the upcoming winter, based on their research of an ascending QBO and low solar activity, both of which factors are present and expected to impact this winter. Moving from Upper Left, to Upper Right, then Lower Left to Lower Right, we are looking at December, January, February and March:
So at this point in time, we could be looking down the barrel of a late arriving winter. It’s been since 2013 that we saw a very cold December, and frankly, December temperatures have not helped our business for some time…and we could be looking at a repeat of that again this year.
For those hoping for early arriving cold in October and November, conditions do not seem favorable for that right now.
If the warmer than normal December temperature anomalies verify (occur) this year, values at the Conway trading hub could face even more downside pressure as inventories seem ample there. Such a result could also put downward pressure at MTB, as well. Still, I would not discount off-hub basis spikes in the Ohio Valley and Northeast if the winter arrives late and is cold in January and February, similar to last year’s timing. But you will recall the Conway and MTB trading hubs dropped precipitously mid-winter of 2017-2018 as well.
This is the exact scenario I have been writing and talking about since late Spring; my fears that we would see a repeat of last year relative to values at the trading hub. That said, I certainly didn’t anticipate seeing a similar price run up this summer as we experienced last year…when you combine the price run up, especially in MTB, with the risks for a hub collapse, that is another uncomfortable scenario.
There are tools available to help protect the purchases you have already made from downside risks. Shoot me an email or give me a call at 515-five-zero-five-8000 and we can have a discussion.
(NOTE: BAMWx.com is the meteorological partner for Propane Buzz. We share their extended two-week forecast on a daily basis, and will continue to do so each and every day this fall and winter. This is a part of what subscribers to The Propane Buzz enjoy each and every day at no additional costs beyond their monthly subscription. Click here to learn more about our subscription offerings).
Interesting news emanating from the Middle East.
First, we have Russian reports that Turkey has shot down one of their jets. Combine that with yesterday’s comments from Saudi Arabia that they are willing to work with oil producing nations to stabilize prices and you have a pause in the drop in oil prices…for the time being.
Crude prices are up nearly $2.00 off their early Monday lows as the black stuff appeared headed back below the $40/bbl mark.
Saudi Arabia’s comments come in advance of their meeting next week in Vienna, one of two regularly scheduled meetings per year. The comments didn’t exactly light the world on fire, either.
While the Saudi’s didn’t lay out specifics on what they meant by their statement, some folks took that to mean they would entertain the thought of cutting their production, which is really the best way to ‘stabilize supply’ for the world, since the Saudi’s are flooding the world markets with their oil. This has been their strategy since one year ago; to drive down oil prices and put many American shale oil companies out of business.
While one can argue the success of that plan, there has also been a boomerang effect; other OPEC nations and Russia have seen their petrodollar dependent economies take a hit since oil lost more than half it’s value from the summer of 2014. This article highlights some of the infighting that seems to be going on with OPEC nations and the Saudi Royal Family.
I don’t expect a great capitulation from the Saudi’s next week, but I no longer get the feeling from them of ‘strong leadership’. King Abdullah, the architect of Saudi’s current ‘flood the market’ strategy died in January of 2015. His heirs and new monarchs do not appear to be as hardened as he was an may be more open to capitulation.
As for the geopolitical risk in crude oil pricing, we may be seeing some of that creeping back into the market place, but I think it will take more than just one downed jet. Turkey has been consistent in expressing its right to protect its airspace.
That said, the proxy war taking place in Syria is a powder keg that would only take a few sparks to quickly escalate. If that happens, crude oil will rise quickly, and all energy prices will rise along with it.
Crude oil prices are in the midst of a large drop on Tuesday, fueled by OPEC production news and China’s devaluation of their currency.
As of this writing (10:40am central), Crude is off $1.93 at around $43.03. It has been as low as $42.98 on the day.
Here are some notes from an article (linked here) :
The Organization of Petroleum Exporting Countries said in its latest monthly market report production from its 12 members increased by a net 100,700 barrels to 31.5 million in July. Accounting for just under half of the world’s total supply, the disclosure in an already-oversupplied market pushed crude prices lower.
We are nearing the end of the peak gasoline demand season, and refineries will begin their annual fall ‘turnaround’ maintenance efforts…they typically do some of this in the spring but many postponed doing so this year to take advantage of netbacks which were there for the taking, so this round of maintenance might be prolonged. This could lead to more than usual builds in crude stocks which could also test the crude storage limits in the Gulf and at Cushing, OK.
I remain bearish on the trajectory of crude oil…and that certainly doesn’t engender a great deal of support for higher propane prices.
It’s not easy to put together a weather forecast for winter this far out, but some folks toss their hats into the ring…and some have proven to be more right than others.
If you have followed this blog for any length of time, you know that I am a fan of Joe Bastardi of www.WeatherBELL.com (a pay site, by and large), formerly of AccuWeather.com. To use one of Joe’s favorite sayings, you tend to see what you shine your light on and Joe loves cold and snowy winters. That said, I have found him to be as good as there is in predicting winters, or offering significant clues, far in advance.
Here is what they predicted for the winter of 2014-2015 IN APRIL of 2014:
The snowfall prediction was a great hit while the core of the cold would be farther east and northeast.
I looked at ten or more winter predictions last year and shared many of them. WeatherBell’s forecast was one of the best and all the more impressive given that they issued the forecast in April, five or six months in advance of when most other outlets issued their forecasts in October and November. This includes the National Weather Service forecast, issued in November, which was a horrible miss.
WeatherBELL hasn’t released their 2015-2016 forecast just yet, but I expect it to come out soon. What Bastardi has been doing is sharing signatures of the coming winter.
In an article Bastardi published last week, he talked about the October Siberian Snowfall factor that we have discussed. You can get more familiar with it at this link. Dr. Judah Cohen believes the more snowfall in Siberia early in the winter, the colder/snowier the winter will be for the eastern half of the United States.
Bastardi believes that snowfall harbinger is actually a symptom of conditions, not a cause…meaning that elements were already in place that led to the large Siberian snowfall totals, elements that lead to a colder/snowier winter…and that the Siberian snowfall is an indicator of a larger scheme.
One of those ‘larger scheme’ drivers are SST’s, or Sea Surface Temperatures, in the Pacific. When you have warmer waters around the Pacific Coast, and I mean from Alaska all the way down to the Mexican Pacific Coast, you stand a chance for a ‘good’ winter…good as in what we in the propane business want to see. This is just one driver, but a very important one.
I posted the following on February 20th here on the blog, followed by an explanation in italics:
The AMO is the Atlantic Multidecadal Oscillation. It’s typically defined by Sea Surface Temperatures patters (SST’s) in the North Atlantic. As you can see from the image above, the JAMSTEC model (the primary global source for SST projections) is thinking the waters of the North Atlantic project to be below normal (Colder) for SON201 (September, October and November of 2015). At the same time, it’s pegging SST’s in the Pacific to be WARMER than normal…and that type of set up has typically translated into a cold winter.
So we have that significant driver in our favor.
Then on April 13th, Bastardi made a post titled ‘CFSV2 SEEING BIG EURASIAN SNOWFALL IN FALL?’ The CFSV2 is the Climate Forecasting System.
Here is a small snippet from Bastardi’s post:
“…a ring of warmth with a central Pacific-centered warm ENSO, is a signal for a cold winter over the eastern US, with variances that determine how cold it will be further west…the pattern looks to me like it will go the way of eastern winter weather lovers one more time…”
Bastardi concluded this recent item saying that if we see a lot of snow this fall over Eurasia, it will confirm the ideas of another cold/snowy winter that are beginning to form.
Go back to the JAMSTEC MAJOR CLIMATE AMO BOMB graphic from above and notice the reds along the Pacific…this is warmer water, fuel for ridging in the west and troughs in the east, which gives us the cold we want. Just where those ridges set up impacts the location of the coldest air in the east. Two winters ago, we had ridging in the Gulf of Alaska so the cold was further west, across the Plains and Ohio Valley. This past winter the ridging was farther to the East (still very much in Western North America) and the cold was pushed farther East, across the Northeast here in the states and as far west as Ohio. The Southeast also had a cold winter.
Notice the pool of blue in that graphic above (the JAMSTEC graphic). Cooler waters in the Atlantic off the east coast of the United States would mean less fuel for snowstorms, so an early tell might be a cold winter for us, but not as much precipitation.
After this past winter, I don’t think folks in the Northeast would mind that combination; cold and dry.
I want to add this ‘disclaimer’; these are early indicators. Things can change and sometimes do. We are experiencing an El Nino right now and if it persists into late fall and early winter, it would have an effect on how early the cold could start here in the states.
That said, Bastardi has nailed the past two winters from very far out. I have a great deal of respect for his forecasting skills and believe he is the best in the business. This information is worth filing away as you think towards the winter of 2015-2016. With propane values where they are, I really don’t think anyone is going to get hurt locking in a portion of their supply; the downside risk is exponentially smaller this year than it was one year ago.
BY THE WAY: Here is a fun link to an item that ‘graded’ several different winter forecasts from this past year.
I think Crude Oil will rise in 2015…and not just by a little bit. I would wager we’ll see crude at least in the low $70’s at some point, while Bank of America is pegging it higher than that. saying we’ll see WTI at $82 before the end of the year.
Here is one of the reasons why I think that will be the case; crude traders are betting on it.
“Some of the world’s largest oil traders have this week hired supertankers to store crude at sea, marking a milestone in the build-up of the global glut. Trading firms including Vitol, Trafigura and energy major Shell have all booked crude tankers for up to 12 months, freight brokers and shipping sources told Reuters.”
So those companies are going to fill the tankers (VLCC’s) with crude and basically lease some floating storage. The article linked said they were able to secure those tankers at $40,000 per day (the spot pricing is nearer to $60-70,000 per day).
One of these ships holds 3MM/bbls. 365 days in a year at $40,000 per day is $14,600,000. Divide that by 3MM/bbls and you get a cost of $4.87 dollars per barrel to store the crude…that’s actually not a bad bet, if you have the cash. So they certainly think crude oil will go higher than it is right now, thus they take the risk on the cost of storage and hope it plays out that way.