The official start of propane heating season is only two months away, and inventories are skinny, pretty close to the five-year minimum. Should that be a concern? After all, stocks were at the low end of the range last year, and it was a relatively benign market, with few supply chain disruptions. But there’s a potential gotcha in that statement. Because last year the first three months of winter were quite mild in propane country. What would happen if the market were hit with weather events like what we saw during the “polar vortex” of 2013-14, a winter etched into the minds of all propaners who lived through it? Obviously, the outcome would be quite different. In today’s RBN blog, we continue our series on the upcoming propane heating season with a look at the challenges that unusually cold weather could bring.
This is the second episode of a blog series focused on the outlook for U.S. propane markets during the upcoming 2022-23 heating season. Part 1 was mostly a look in the rear-view mirror, covering the huge increase in export volumes over the past few years, the wide swings in domestic propane seasonal demand, and a cycle-by-cycle review of propane price behavior over the past 18 months. The bottom line is that last year propane prices spiked way up prior to the onset of winter due to a confluence of bullish market developments, then virtually collapsed in November and December when winterlike weather failed to arrive on cue. In essence, prices were high when marketers were building stocks and low when it was time to move those supplies to market. That is not the way it is supposed to happen and can be painful for any company not using the most robust hedging strategies.
Nobody wants to make that same mistake again and be stuck with overpriced inventories this year. But neither does anyone want to be caught with inadequate stocks if and when really cold weather hits. What’s a prudent propaner to do?
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