I’ll make a follow up post later this week that has more detail, as I am packing up to head home from this year’s Southeastern Convention in Atlanta. It was great to meet many new friends as well as catching up with old friends.
I wanted to say that I ran into my first propane bull of the year…someone whose opinions I respect and who is affiliated with the production side of the industry. This person echoed some sentiments that were shared at the NPGA national meeting in February…that supply issues for the propane industry in 1Q16 were not out of the question.
This will be short, but the gist of his thoughts were:
-There is enormous propane exporting capacity coming online this year. We’re talking magnitudes of scale, as in doubling
-We ‘could’ see inventories struggle to build this summer if the arb stays open between America and the rest of the world, given that takeaway capacity
-I asked this person for their prediction on propane prices at the Mt Belvieu hub for January 1st, 2015; they said $1.00/gallon.
If you have been a regular reader of my missives, you know I have not exactly been bullish given the bearish fundamentals in propane stockpiles and crude oil stockpiles. But this person discussed the amount of production that has been shut in (rigs and wells) in recent months and reminded me of how violently this industry corrects itself. We tend to move from one extreme to another with very little time in the calm middle.
I am not going to sit here and say ‘the sky is falling’, but I felt this conversation was worth a harder look at the thoughts that go into this person’s thinking, and I will do that later this week after some more investigation. They directed me to a recent market analysis that I will access and listen to, then come back here with a more detailed write up and ‘interpretation’.
In all, it’s something to consider as you look at your supply for next year, how much you want to be covered and when you begin doing that in earnest.
My opinion on how to protect yourself does not change; cost averaging is the way to go. Look at the market, look at where prices are for this coming winter, and find a number you feel works for your business and take a bite…then set more buying tiers on the way down and be disciplined as we get to those levels and take more bites. This has proven to be a wise strategy through the years as it’s next to impossible to guess the low.
Do I think propane prices will back off from where they are now? My answer to that is yes, but that is based on my belief that crude oil is going to pull back, as long as there isn’t some ‘crazy’ that takes place on the geopolitical front. Do I think buying gas at current levels will hurt you this coming winter? Nope. Do I think you should be considering locking up some gallons at fixed prices for 4Q16? Yup, I sure do.
At the worst, now is the time to establish a plan, a buying strategy and then execute that plan. You should always hope that the first piece you buy is the highest price you will pay all year. When that turns out to be the case and you are fortunate enough to cost average to the downside, good things tend to happen…as in your business and customer base is protected and the year will be profitable.
That’s it for now…I swear this stuff fit in my suitcase when I left home. Why is it so much harder to pack for the return trip?