Improvements in the U.S. stock market helped West Texas Intermediate (WTI) crude improve to more than $45 per barrel (/bbl), which helped push heavy NGL prices back to the same levels they held prior to last week’s market downturn.

Though both the financial and commodities markets improved the final week of August, the outlook remains bearish with fears of a collapse in China’s economy along with an oversupplied global crude market.

“Financial market turmoil is undermining global economic growth and reducing the demand for inventory, which is especially negative for oil prices given [more than] 300 million bbl of surplus inventory,” PIRA Energy Group said in an Aug. 28 research note. “This surplus is hardly eroded in the fourth quarter, making prices vulnerable to weakness if [the] financial turmoil worsens,” the note continued.

Not all of the news was bad though, as PIRA noted that the lower prices are now the stronger they will be later. Additionally, global light product demand remains strong. The increased demand for refined products is further supporting heavy NGL prices.

Indeed, butane, isobutane and C5+ prices each rose at least 6% at Conway with butane and isobutane improving 5% at Mont Belvieu from the previous week. This was somewhat tempered by C5+ only up 1% at Mont Belvieu, but prices were once above $1.00 per gallon (/gal) by the end of the week.

Propane prices surged at both hubs due to the combination of improved crude prices along with increased demand for LPG. PIRA reported that U.S. LPG prices are outperforming WTI due to an anticipated increase in seasonal demand.

The price rose 7% to 36 cents per gallon (/gal) at Conway, its highest price since it was 37 cents/gal the week of May 27, while the Mont Belvieu price rose 5% to 39 cents/gal, its highest price since it was 41 cents/gal the week of July 22. These improvements are impressive since storage remain at record levels. However, this could lead to another steep decline if demand doesn’t approach forecasts or if LPG export demand falls off.

The other light NGL, ethane, was down at both hubs as it fell 7% to 15 cents/gal at Conway and 2% to 18 cents/gal at Mont Belvieu. Both prices were the lowest they had been since the week of July 15. Once again there is a silver lining as PIRA reported that ethane prices are approaching trading levels relative to gas prices that will incentivize incremental production.

The theoretical NGL bbl price improved 4% at Conway to $16.91/bbl with a 3% gain in margin to $7.19/bbl. It was up 3% at Mont Belvieu to $17.72/bbl with a 4% improvement in margin to $7.97/bbl.

Natural gas prices made modest improvements as cooling demand was up in much of the country. Though the oil-to-gas ratio has closed this year and there has been increased drilling in certain parts of the country, crude production economics are still favored by most producers.

These largely static gas prices saw margins improve at both hubs with C5+ remaining the most profitable NGL to make at 64 cents/gal at Conway and 61 cents/gal at Mont Belvieu. This was followed, in order, by isobutane at 29 cents/gal at Conway and 27 cents/gal at Mont Belvieu; butane at 19 cents/gal at Conway and 24 cents/gal at Mont Belvieu; propane at 11 cents/gal at Conway and 15 cents/gal at Mont Belvieu; and ethane at negative 3 cents/gal at Conway and nil at Mont Belvieu.

Even with increased cooling demand, the U.S. Energy Information Administration reported a hefty 94 billion cubic feet increase for the week of Aug. 28. This pushed the storage level to 3.193 trillion cubic feet (Tcf) from 3.099 Tcf the previous week. This represented a 18% increase from the 2.698 Tcf posted last year at the same time and a 4% increase over the five-year average of 3.071 Tcf. Cooling demand should be above-average for early September as the National Weather Service is forecasting warmer-than-normal temperatures throughout much of the country.

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