Will Propane Prices Drop or is there Room to Rise? We all wish we had the answer to those questions, but we don’t. Lacking definitive intuition, we’re left to our own devices as well as some historic barometers.
In the attached image, we illustrate the historic relationship between WTI Crude to propane prices in Conway and Mt. Belvieu. Click on the image to make it larger.
The row across the top of each region is the year in question, left to right being 1995 through the current year 2013. Months are on the left and the percentage of propane to crude is populated in the fields.
The thing that will jump out at you straight away is how low the percentage of propane to crude is right now in comparison to any other time frame over the past 18 years. It’s rather amazing how much of an outlier 2013 has been and there really isn’t anything else like it in the past 18 years. From a past 18 year historical perspective, there is certainly support for propane prices where they are and support for these prices to stay where they are even if crude oil pulls back.
Let’s just say propane moves up to be consistently 50% the cost of crude. Here is what propane would cost per gallon in comparison to the hypothetical crude oil price on the left:
$100 = $1.19/gallon
$90 = $1.07/gallon
$80 = $.9500/gallon
As of this writing, propane is around $1.00 at Belvieu and Conway and Crude is $107-ish. At a 50% to crude ratio, propane would be priced at $1.28/gallon. Frankly, if propane were at 50% to crude, I might still be sending out this item highlighting how propane prices had some upside related their historic relation to crude because 50% is also on the low side, much less the upper 30 percent rage we are in right now. Just something to think about as you analyze your upside and downside risks for this season.