CN RAIL BLOCKADE: This is certainly newsworthy for some of you, but it may impact more of you than you might think. A rail blockade is currently underway in Canada as a protest of a proposed pipeline in Northern British Columbia. You can read about it here. The article states that CN rail trains have not been running since Thursday….and propane deliveries are going to be affected. This could impact deliveries of propane across much of the northern tier of the United States, and possibly beyond. If you get some or all of your propane via rail that travels across CN owned railways, you are in the cross hairs right now.
FOLLOW THE MONEY: In his weekly look at banking activity within the energy space, John Kemp of Reuters wrote the following:
“Hedge funds continued selling petroleum last week as fears about a coronavirus-driven recession centered on China gripped the market, but the rate of sales slowed compared with the previous fortnight. Overall, the last time the hedge fund community was this bearish towards petroleum was in early October, and before that January 2019, when concerns about a U.S./China trade-war driven recession were at their highest. Fund managers hold less than three bullish long positions for every bearish short one, down from a recent peak ratio of almost 7:1 at the start of the year.
The ratio of long to short positions is towards the bottom of the range for the last four years, currently in the 19th percentile for all weeks since the start of 2016. From a positioning perspective, the distribution of risks had shifted to the upside by the start of last week, with the potential for a significant increase in bullish positions and prices if the coronavirus outbreak is brought under control and China’s business activity returns to near normal. From a fundamental perspective, the balance of risks appears more symmetrical, with the possibility of a quick resumption of business activity matched by the risk of a deeper and longer lasting downturn if the outbreak spreads or triggers a renewed business cycle downturn.”
You can read the entire article at this link.
Next, I will share a set of images with you. The two images on the top row show Conway and MTB daily averages for the 2020 year so far, along with propane’s value to crude oil for the year so far.
The bottom row shows the daily averages at MTB/TET (left) for the last four years from the beginning of the calendar year through 2/14 of each year. The blue line is this year, red line is last year, green line is 2017 and yellow line 2018. As you can see, we begin 2020 with the lowest daily values for propane we have seen in four years. If I had the data for 2016, it would likely be lower than what we are currently experiencing.
The month average MTB/TET price for propane in January of 2016 was $.33586/cpg, with Conway at $.30007/cpg. Those were the lowest levels propane had seen for many a moon…how many moons? Scroll down below the four images set…
The chart to the right (click on it to expand it) shows MTB & Conway monthly averages since 1988 through January 2020. MTB is in blue, Conway is in red. You can see the big red spike around January of 2014, which of course, was one of the most insane periods for pricing volatility in the history of our industry. A few years prior to that, which is the second highest spike on this chart, was the lead up before the Economic Crisis of 2008, and the precipitous drop on the backside. You can also see the October 2018 price drop farther to the right on this chart, but it pales in comparison to the drop in 2008.
At any rate, we were talking about the monthly average lows of 2016…which you can see at the green arrow. The blue arrow is the lows we have recently experienced in August of 2019, which was the second lowest period for monthly averages since January of 2016. Before that, you have to go back to December of 2001 through February of 2002 to find a lower price period for propane monthly averages at the trading hubs. Before that, you have the low crude price environment of late 1998 into early 1999. Conway’s monthly average in December of 1998 was $.18699/cpg, with MTB at $.20898/cpg. The lowest MTB monthly average since January of 1988 was in October of 1988, when it was $.19375/cpg. The low for propane Since January 1988 was $.17671/cpg for February of 1989.
All of this is to say that we are currently living in one of the lowest flat price environments for propane in the last 20 years. Likely the fourth lowest, challenging for the third lowest. While past performance is not a guarantee of future results, you can see from the data what took place on the heels of each of the previous three low cost environments (arrows in red, yellow and green).
I was wholesaling propane in each of the Red, Yellow and Green periods, and I recall a number of propane dealers taking advantage of these low cost periods and securing values for multiple years in advance. While I am not saying this is something you should do today, the general notion is something I would urge you to ponder as you begin preparing for the 2020-2021 contracting season….and beyond.
As always, we can help you with any questions, as well as securing supply and helping you with strategies as to how best mitigate price volatility risks in your market. Contact Jon Miller at email@example.com to set up a time to talk. Our team will be in Nashville in April, if you’d like to arrange a meeting there, too.