It’s always the question and from year to year, the answers are never the same.
“When is it time to begin buying for the next demand season?”
I realize we’re all so slammed with demand and challenges from this current heating season and we are just at the midway point…if even that. However, people have begun buying for next year as outmonth prices have retreated from two weeks ago.
Some folks I’ve spoken with have said ‘I am going to hold out until prices get down around $1.00/Conway’ for the Fall/Winter.
I hope prices get down to that point, but what is going to have to happen to get to those numbers???
For much of 2013, propane had ‘detached’ from its historic relationship to crude oil. We saw propane less than 40% the price of crude oil through the first half of 2013. This led to amazing buying opportunities and a lot of you took advantage of that, with the market bottom out around June 20th and Conway propane was just 35.6% that of crude oil that month, the second lowest level in 18 years.
Right now, will sell $1.0900/Conway for May of 2014, adding a penny per month all the way to December. You would need to add your appropriate pipe tariff to see what it is FOB the terminal of your choosing. How does that number relate to a crude oil price?
Check out the chart below:
Take a look at the bottom line, the annual averages of Conway propane as a percentage of Crude. For the four years prior to 2013, we were looking around 60% or just below. The years before that saw much higher percentages. Let’s just use 60% for easy math.
Take our $1.09 price from above and after you convert it into barrels, we get $76.30/barrel.
Crude oil is currently around $91.50/bbl and it’s pretty much flatly priced through May. September sees crude in the high $80’s and December of 2014 is in the $87’s.
So our May price for propane, which can be rolled forward a penny per month, is the equivalent of $76.30/bbl which is 18% below the 60% barrier we discussed before. If we took 60% of the May $91.50 crude price, that would equate to a $1.3071/gallon propane price for May….obviously, we’re much cheaper than that at $1.0900. The $1.0900 number is actually 50% of crude for May.
Back to this magic “$1.00/gallon” propane some are hoping to buy. Even using a 50% relationship to crude that we’re pricing now, that means crude oil is going to have to drop down to $84.00/bbl. If it gets back tracking in that 60% cost of crude, that means crude will have to get to right around $70/bbl….and that is not happening.
I am by no means saying these current numbers are the lowest prices you’re going to see. I just wanted to lay out that $1.00/gallon scenario and take a look at where things might need to, crude wise, to experience it….at least through the eyes of historical pricing.