“My momma always said you can tell a lot about a person by their shoes… where they’ve been…where they goin.”
That’s a line from ‘Forrest Gump’. Forrest wasn’t born with a great deal of intellect, but he sure had a smart momma and even more so he was a great listener 😉
When analyzing the energy markets, one of the most important tools we have at our disposal to predict the future is our memory and data we have compiled on the past…where we’ve been and where we’re going.
WHAT WE SAW IN 2013:
* Record levels of propane exports
* HIGH petchem consumption of propane from winter through the first half of the year
* Because of 1 & 2 we saw sluggish Midcon inventory builds all summer and fall
* Cochin supply interruption in advance of Spring 2014 phase out
* HIGH grain drying demand in Minnesota, Iowa, Illinois and Indiana (Oct/Nov)
* That demand caused allocation to kick in the first week of November in some areas
* Geologic failure of the Tod Hunter cavern
* SEVERE TEPPCO supply issues and harsh allocation forcing Indiana marketers into Illinois and Missouri markets (Oct/Nov)
* Storage levels near historic levels for every month in 4Q
* Strong heating demand as cold and at times bitter cold gripped the entire region
WHAT WE’VE SEEN IN JANUARY 2014
*EXTREME COLD…otherwise known as the Polar Vortex, in early January
*Back to back huge EIA reported inventory drawdowns: We’re at 38.7MM nationally, at record lows for this time in the Midcon
* Wet barrel frenzy, seeing Conway spot pricing going up over $.50 cents in 48 hours
* Spot pricing in Conway exceeding $2.00/gal on the trading market. I wrote on December 10th that we’d see $1.50 in Conway, “If not much higher”
* Southern Hills pipeline exporting 50,000/bbls per day from Conway to Belvieu for exporting, which was contracted a long time ago
* Another possible Polar Vortex at the end of January, early February
* Arguably the greatest prolonged stress on the United States propane supply infrastructure in modern history…allocation everywhere but the Dixie
* Potentially one of the greatest spring/summer fills ever as dealers try to build as much allocation as possible for the winter by utilizing all of their tertiary storage which will only lead to a self-fulfillment
And it’s just January 20th…with another bitter blast of cold air forecast for the end of this month. In all seriousness this is the worst case, ‘Perfect Storm’ scenario hitting this industry, all in the year 2013.
We saw a big run up in pricing pricing in 2008, but the primary driver behind the rise was crude related and the primary driver for the collapse of pricing was the collapse of the financial markets in October of 2008. Crude began 2008 at an average of 92.93..similar to what we have now. It spiked to 134.02 for June of 2008 and was at 133.24 in July of 2008. In October of 2008 the average cratered to 76.76 and then down to 39.26 in Feb of 2009. Propane prices began 2008 at $146.19 and went up to $176.50 for July. Come October it was $1.03.84 and was down into the high $.60’s in December.
The current pricing run up is FAR MORE fundamental than the 2008 run up, which was very, very speculative and tied to the financial markets and the overheated economy. Right now, prices have everything to do with inventory shortages, both on the macro level and the micro, wet-barrel market level.
When we get out of this winter, inventories are going to be extremely low.