This Trend Is Not Your Friend

Correction or New Trend? Clues to Look For:

Uploaded Image: /uploads/blog-photos/Bears-Bulls-HR_red-border-1200web.jpgMany people think technical trading is unscientific, and perhaps it is. But can science explain everything? A logical person would say: “It’s all about the fundamentals.” And, ultimately, that’s true. But you may need to wait a while.

To me, technical analysis provides a price forecast: “If this happens, then that should happen” based on the historical record of the daily emotional responses that move a market up and down – things like fear and greed.

Support and resistance levels are intangible things, but calculable. And, I believe you get a more complete sense of what’s possible in the future when you combine a knowledge of the fundamentals with a slightly contrarian appreciation for technical analysis.

More on prices soon.

A New Propane Export Terminal:

As you probably know, export levels are up about 30% since last year.

Add a massive, new Phillips 66 export terminal in Freeport, TX, into the mix. To put this new terminal in context, they can load 2 ships at a time or about 6.3 million gallons of propane per day.

But even this colossal new terminal only represents about 10% of total exports. And total U.S. exports (Enterprise is the largest share) are only operating at 75% capacity.

What you come to realize is that high inventory levels don’t mean anything anymore. It’s all about production levels (supply) and export levels (demand).

EIA Numbers for the Week:

  • Propane inventories fell 4.5 million bbls. (79.7 new total)
  • Production is the highest in a month (1,768K bbls.)
  • Exports are the 2nd highest in 6 weeks (1,043K bbls.)

Days of Propane Supply:

1/11/17 12/9/16 12/2/16 11/25/16
55 77 86 91

Where are We Going with Propane Prices?

Here are the Mt. Belvieu monthly averages for the past four months with a projection for January.

Uploaded Image: /uploads/blog-photos/Ray-Energy-Price-Chart-11217-800.png

Before our discussion on price, I’d like to include an EIA chart of monthly Mont Belvieu propane prices.

Uploaded Image: /uploads/blog-photos/EIA-Chart-Revised.png  

  • The most recent, major market drop (without a substantial correction) was from $1.44 in February, 2014, to $.3360 in January, 2016.
  • Note the big gap down from $1.05 to $.50. That gap will be filled in or we should move lower again.
  • The 50% retracement level (resistance) is almost $.89.

I’m not psychic, so please don’t take these thoughts for more than they’re worth. But, I would not be surprised by a move towards $.88 to $1.00 gallon in the next 6 to 8 weeks.

The takeaway:

Let’s hope that what we’re seeing now is just a healthy correction to what is still, essentially, a bear market (trending down). We just need to stay under that top trending line! And if we do move towards $1.00 gallon, let’s hope it’s quickly followed by reports of record-setting production levels, sharply declining export demand, and a decent drop in propane prices.

Click here for additional data on the U.S. Energy Information Administration (EIA) concerning Mont Belvieu propane prices. 

Did You Know?

  • The Sea-3 marine terminal in Newington, NH, was built 42 years ago. The name itself is based upon a pun: the chemical configuration of propane is C3H8, and the 3 seas which were the major sources of the imported supply: the North Sea, Mediterranean, and Caribbean. Two large, refrigerated storage containers (approximately 26 million gallons) keep the propane in a liquid state of -44 degrees.
  • The Harford Mills, NY, propane storage facility (just east of Ithaca, NY) has two salt dome storage caverns, with the capacity to hold about 21 million gallons of propane.

I mention these large propane facilities in New Hampshire and New York because Ray Energy has a supply position at both locations to support the logistics of our diversified Northeast rail and pipeline terminals and to meet your incremental supply needs.

The Skinny:

Back in September, we suggested: “In the current low-price environment, it would be a good idea to protect your margin and cover any remaining pre-buy exposure you may have. Ray Energy can help by converting index-priced gallons to a fixed price.”

Our recommendation now, since it’s only “half-time” for winter, is that you take a look at what you have contracted versus your anticipated upcoming requirements and buy a few extra loads of winter-only insurance from us.

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