NYM crude need not chase cash propane, but what if gas is prologue?
March 13, 2024
Key Observations:
The title at top has been our main rubric for framing energy commodity price risk since Nov-2023. Yesterday's U.S. Feb-24 CPI report confirmed that retail gasoline (+3.8% MoM SA) is still pressing the consumer wallet. Meanwhile, shipping is still avoiding the Red Sea, and a further deterioration in geopolitical conditions remains a key risk in at least four oil-sensitive regions: Mideast, Russia, Venezuela/Guyana, and China/Taiwan.
Our third factor, hot winter, had already smacked U.S. gas markets hard in Jan and Feb. This week the absence of heating demand forced even EQT to pledge production cuts, as physical schedulers found themselves trapped in a buyers' market. The Waha Hub cash price collapsed below zero on Monday and settled at –$0.31 per MMBtu yesterday.
So far, inflation and geopolitics have insulated WTI crude from the price consequences of one of the hottest winters on record. Crude prices have held up well on supply management, but it would be foolish not to ask: is that insulation about to fray?
There is at least a one-in-three chance that the profitable answer is yes. For the past two months, we have flagged the falling cash price of propane at the Conway Hub as a likely drag on the Apr-24 NYM WTI crude oil contract (CLJ4) as it winds its way toward its physically-settled Mar 20 expiry. Yesterday, this propane price fell below 70 cpg. History from a year ago (CLJ3 expiry after a warm winter) suggests longs should not ignore that fact.
Source: NYM, DTN Energy, Blacklight Research.
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