West Texas Intermediate crude prices rose above $100 per barrel (/bbl.) the first full week of July on the back of a report from the Energy Information Administration (EIA) that revealed crude, gasoline and distillate inventory levels are below expectations. In addition, the military coup in Egypt had a positive impact on prices.

While geopolitical events, specifically those in the Middle East, have undoubtedly been a factor in the price increase for crude oil, Barclays Capital said that impact has been overstated. Instead the investment firm contends that these factors are supporting prices at their current levels rather than pushing them higher.

The most recent and significant geopolitical factors, in terms of crude oil price impacts, are the uprising in Egypt and the security of the Suez Canal. “While these geopolitical factors are likely to continue creating various degrees of risk to the supply side, in our view, they are now playing the role of supporting prices at current levels more so than pushing prices higher by acting as a catalyst, especially given the improved supply buffers and the increasing uncertainty surrounding global oil demand growth,” the investment firm said in a July 5 commodities research note.

Headwinds that are preventing a retracement in prices are an increase in prompt demand for crude; a downturn in economic confidence in the key emerging economies of China, India and Brazil and crude prices are still expensive in domestic currencies, the report said.

While the market is responding to these factors by keeping prices at a higher-than-expected level given current demand trends, the market is not reacting in such a way that prices are spiking. A large part of this weighted market is that the downside is stable. Barclays Capital’s Miswin Mahesh and Afonso Campos stated that with ample crude inventories, fading growth expectations in emerging markets and increased production from North America are all working against larger improvements for prices.

“A prime reason for prices being buoyed above $100 per barrel even during refinery maintenance in the second quarter were the risks associated with several geopolitical elements,” according to the research note.

“Best measured through the reactionary moves which have become much more muted than before, this shows that the market is certainly keeping a close eye on the growing level of supply buffers that are currently present which can absorb the impacts of any sudden disruption if there were to be one,” the note continued.

Mahesh and Campos continued that the current market is less constructive than last year when similar geopolitical undercurrents were at play.

What cannot be questioned is the impact that improved crude prices had on heavy natural gas liquids (NGLs) as they experienced solid increases at both Conway and Mont Belvieu this week.

The largest increase in price for any NGL at either hub this week was for Conway C5+, which rose 6% to $2.05 per gallon (/gal). This was the largest price at the hub since the week of May 15 when it was $2.03/gal. The Mont Belvieu price was greater than at Conway, but had a smaller price increase as it rose 4% to $2.06/gal.

Mont Belvieu isobutane had the largest increase of any NGL at the hub as it rose 5% to $1.27/gal, its highest price since it was also $1.27/gal the week of May 29. However, it had limited volatility and still had a lesser price value than its Conway counterpart for the fourth consecutive week. The Conway price only increased 1% as it appears that its growth potential at the hub this season has slowed. The price of $1.39/gal was the largest at the hub since it was $1.44/gal the week of March 27.

Butane prices gained 5% at Conway and 4% at Mont Belvieu, which narrowed the price differential to only 5¢/gal. The Mont Belvieu price of $1.23/gal was the highest in six weeks while the Conway price of $1.18/gal was the highest in 11 weeks.

Propane prices are finally beginning to move upwards as inventory levels continue to trend lower than the five-year average. It took some time for liquefied petroleum gas (LPG) exports to have a notable impact on prices, but prices grew at both hubs for the second straight week. Prices continue to trade below their highs for the year, but are approaching these levels. This is quite impressive considering that prices were driven by a cold winter.

Ethane prices remained flat at both hubs as cracker outages and a storage overhang are negatively impacting prices. In fact, while frac spread margins are solid at both hubs for every other NGL, ethane margins are once again negative at both hubs.

The most positive NGL to make at both hubs remained C5+ at $1.66/gal at Mont Belvieu and $1.65/gal at Conway. This was followed, in order, by isobutane at 90¢/gal at Mont Belvieu and $1.03/gal at Conway; butane at 85¢/gal at Mont Belvieu and 81¢/gal at Conway; propane at 55¢/gal at Mont Belvieu and 51¢/gal at Conway; and ethane at nil at Mont Belvieu and negative 5¢/gal at Conway.

Natural gas storage levels continued to grow at a rate somewhat lower than anticipated for this part of the injection season as cooling demand remains strong in much of the country. According to the EIA’s most recent data, natural gas in storage rose 82 billion cubic feet to 2.687 trillion cubic feet (Tcf) the week of July 5 from 2.605 Tcf the previous week. This was 14% below the 3.130 Tcf figure posted last year at the same time and 1% lower than the five-year average of 2.709 Tcf.

Contact the author, Frank Nieto, at fnieto@hartenergy.com

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