It’s beginning to sound like a song stuck on repeat, but natural gas and NGL prices continued to tumble the week of Dec. 10 as they followed the downward trajectory of crude oil prices. This marked the third straight week that prices fell across the board. The only somewhat positive note to take from the movement in prices was that there was a slight upswing in values from Dec. 12 to 16, though it is far too early to say whether this is a sign of stabilization or not, especially given that crude prices keep dropping in value.

In fact, the situation for crude is likely to remain challenged for an extended period of time, according to Barclays Capital. The investment firm anticipates the market imbalance peaking sometime in the first-half of 2015.

“At that time, our forecast indicates that the call on OPEC should average 28.6 million barrel (bbl) per day [MMbbl/d]. With OPEC having stated its commitment to let the market balance naturally, market consensus is that the organization will continue to produce at or above its 30 MMbbl/d mandate (assuming no supply disruptions, no emergency cuts, and no voluntary individual cuts),” Barclays Capital said in a Dec. 15 research note.

The investment firm compared the expected storage overhang to 2008, which led to a deep price correction. However, the note states that the 2008 correction isn’t that similar to today’s environment. “Does a second wave of substantial stock building mean that the 1:6 month spread will widen to $10, like in 2008? It is possible. However, there are several key things to consider. We are not in the middle of a systemic global market meltdown like in 2008, so there is no additional pressure on crude stemming from a broader market weakness.”

Barclays Capital also anticipates a possible change in OPEC policy after the speed with which crude prices have fallen this quarter. This, along with the possibility of supply disruptions caused by instability in certain oil-producing regions, has resulted in the investment firm taking an inelastic short-term outlook with a forecast for West Texas Intermediate prices to average $66/bbl in 2015.

This will further challenge NGL prices, especially the heavy portions of the theoretical bbl that are more closely aligned with crude. Pentanes-plus (C5+) prices are at their lowest levels since the last serious downturn in crude in 2009 as they are down nearly $1 per gallon (/gal) compared to their values last year at the same time.

The Mont Belvieu price fell 11% to $1.16/gal, its lowest price since it was $1.10/gal the week of May 6, 2009. The Conway price dropped 10% to the same $1.16/gal level, which was the lowest it has been since the week of May 20, 2009 when it was $1.13/gal.

Butane and isobutane prices fell at steeper rates due to normal decreases in gasoline demand during the winter season. The biggest downturn was for Conway isobutane, which dropped 18% to 78 cents/gal, its lowest price since it was 76 cents/gal the week of March 11, 2009.

Improved gas prices, along with the increased rejection of ethane and cracking of other products, helped support a modest 4% price increase for Mont Belvieu ethane. The 16 cents/gal price was the second-lowest at the hub in the past decade as the margin remained firmly negative. The Conway price fell 2% to 15 cents/gal, its lowest value since the beginning of 2014.

Ethane rejection may be exceeding 450,000 bbl/d, according to En*Vantage with most rejection occurring in the Rockies and Appalachian Basin due to limited transportation capacity. The company stated that rejection has also begun to increase in the Midcontinent as well. “It would take Mont Belvieu ethane prices to rise by 27 cents/gal before ethane could be fully extracted in the Rockies and by 17 cents/gal in the Marcellus/Utica,” En*Vantage said in its Dec. 18 Weekly Energy Report.

Propane was down at both hubs as storage levels are at record high levels for this time of year with LPG exports taking a bit of a downturn with less demand from Europe. The Mont Belvieu price fell 6% to 54 cents/gal, its lowest price in more than a decade. The Conway price tumbled 7% to 52 cents/gal, the lowest it has been since it was 51 cents/gal the week of July 4, 2012.

The one positive for the hydrocarbon markets was the improvements shown in natural gas prices, which rose 3% to $3.51/MMBtu at Conway and 4% to $3.62/MMBtu at Mont Belvieu. These increases are being generated as utilities are preparing for the first real cold weather of the season, expected this coming week.

The bad news, of course, is that the higher gas prices helped to push frac spread margins down even more. The most profitable NGL to make remained C5+ at 77 cents/gal at Conway and 76 cents/gal at Mont Belvieu. This was followed, in order, by isobutane at 43 cents/gal at Conway and 33 cents/gal at Mont Belvieu; butane at 40 cents/gal at Conway and 30 cents/gal at Mont Belvieu; propane at 20 cents/gal at Conway and 21 cents/gal at Mont Belvieu; and ethane at negative 8 cents/gal at both hubs.

Natural gas storage levels fell by 64 billion cubic feet the week of Dec. 12 to 3.295 trillion cubic feet (Tcf) from 3.359 Tcf the previous week, according to the most recent information from the U.S. Energy Information Administration. This was about the same level as the 3.289 Tcf posted last year at the same time and 7% below the five-year average of 3.553 Tcf.

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