Back in the summer, I emailed out an item that talked about crude oil being the biggest bear on the horizon….we’d need to add a record propane inventory build into that mix, but it’s tough to account for all-time records in analysis.
I came across an item today that talks about the prospects for crude prices going forward. I’d certainly classify it in the big time bear category and something that will likely impact propane prices into next year. I feel there is a fairly decent chance that all propane marketers in the United States, or at least those in the Midwest, Southeast and up through Ohio, will be able to lock in winter 2015-2016 contracts under $1.00/gallon, based on how things look today.
Here is the item that I came across that would be good for you to read in your spare time.
Below are some items worth pointing out:
On the demand side, the thirst for oil is declining in Europe, where unemployment and industrial activity is down, and Japan, where the use of oil by utilities is being replaced by natural gas and coal. Restarting Japan’s nuclear plants next year will probably cut oil demand further, according to the United States Energy Department.
Last week the Energy Department reported that oil consumption in the industrialized countries was down 200,000 barrels a day this year compared with last year. The government expects American consumption, which increased by nearly 500,000 barrels a day in 2013, to decline by 40,000 barrels a day this year.
“The shale plays in the U.S. will become noneconomic at W.T.I. of $80 or so,” said Ed Hirs, managing director of Hillhouse Resources, an oil and gas exploration company, referring to the American benchmark price, currently around $85 a barrel.
Other analysts say investments will not stop dropping in an important way until the United States benchmark falls to $70 or even $60, since drilling has become increasingly efficient because of improved technology.
As of this ten seconds, crude is just below $84.00/bbl, which is a technical support level. If it breaks on through here (and we have seen support at this number in recent days), we could be headed down towards $80.00/bbl. Right now, propane prices are roughly 47% that of crude…I think we can throw out the historic ‘60% of crude’ barometer. Propane’s pricing for the rest of this heating season will take its cues from demand and I am still optimistic that we will see a cold winter in the eastern two-thirds of the nation.
But as far as next year goes? Cost averaging will be the word of the year, and taking smaller bites unless the fundamentals change.