Crude oil prices lost some luster as spring arrived, falling below $40 per barrel (bbl) as crude imports rose and pushed inventory levels toward record highs. There was some optimism surrounding the market, though, as the U.S. Energy Information Administration (EIA) announced a nearly 5 million bbl (MMbbl) decline in early April.
This unexpected decline was a result of improved refi ning demand created by lower prices. The inventory decline was the fi rst in two months, but the larger issue is that crude inventories hit their all-time high of just under 535 MMbbl the previous week. While a decline is good news for the market, it will take several weeks, and ideally months, of declines for the market to show signs of a long-term recovery.
That said, prices should begin to experience another uptick in the coming months when summer refi nery runs increase. In the meantime, the drop in crude prices resulted in NGL prices largely falling throughout the U.S.
The largest decline at both NGL hubs was for propane, which fell 4% as inventory levels rose slightly. Stock levels are expected to increase through the injection season, but export demand should help to minimize these injections. As it stands, propane margins tripled in value throughout the winter and should remain solid.
Propane has been the success story of 2016 for commodities as exports have worked off a substantial amount of the overhang that was in place heading into the winter. Analysts anticipated a large build due to a mild winter that would limit heating demand, but lower prices have created arbitrage levels that have encouraged very high export demand. This demand has also been supported by new export capacity along the Gulf Coast.
Meanwhile, the Conway, Kan., hub had ethane margins that were very thin at press time as prices fell to 13 cents per gallon (gal), which combined with higher gas prices caused by lower production levels left the margin at only 1 cent/gal. Mont Belvieu, Texas, hub margins were higher.
The performance of crude and NGL prices over the next few months will help provide an indication of whether the market has created a floor price. Once the summer begins, cooling demand along with increased ethane cracking and export capacity will help to increase demand.
Current prices are certainly well off their 2014 levels before the market downturn, but there is growing evidence that a fl oor is forming from which a recovery can begin.
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