Crude oil prices continue to fall as geopolitical issues impact both the West Texas Intermediate (WTI) and Brent markets. The WTI price fell below $75 per barrel (/bbl), nearing a level that could halt some U.S. unconventional production.

While a halt is unlikely over the short term, an extended dip below $70/bbl would raise that fear. The bottoming out of crude prices, which has resulted in backwardation, should improve in second-half 2015 as lower prices increase demand.

Until crude prices improve, it is likely that heavy NGL prices will also feel similar pains. Pentanes-plus (C5+) prices have fallen 36% in the past six months to $1.54 per gallon (/gal) at Conway and 30% to $1.58/gal at Mont Belvieu during the same period.

Butane and isobutane experienced similar price decreases. Mont Belvieu prices have lost about 20 cents/gal in value in the past six months while the product has lost about 14 cents/gal in value at Conway.

Propane prices experienced a price drop at both hubs following another period of abnormally warm weather throughout most of the country the weekend of Nov. 8. Prices for the week fell 5% at Mont Belvieu to 85 cents/gal, its lowest price since the week of June 26, when it had the same value. The Conway price fell 3% to 92 cents/gal, its second highest price in a month. The Conway market is more dependent on propane as a heating and crop-drying fuel, hence the higher price than the Gulf Coast price.

Ethane prices improved at both hubs as the return of some cracking capacity is helping increase demand. The Conway price rose 9% to 21 cents/gal, its highest price since it was 22 cents/gal the week of Sept. 17. The Mont Belvieu price increased 4% to 23 cents/gal, its highest price since the first week of October when it was also 23 cents/gal.

Natural gas prices showed improvement ahead of the expectation for increased heating demand as the price increased 10% to $4.09 per million Btu (/MMBtu) at Conway and 9% to $4.17/MMBtu at Mont Belvieu.

According to Barclays Capital, this rapid price rebound was due to the colder-than-normal temperatures being experienced throughout the country. However, the investment firm anticipates normal range-bound expectations for the rest of this quarter.

“Looking over the longer-term, with storage ending October at 3.571 trillion cubic feet (Tcf) and production growth set to continue, supply should be ample over the course of the winter and we expect to end the withdrawal season in March 2015 marginally above the average since 2007—helping the market forget that March 2014’s low storage level ever happened,” Barclays Capital said in a recent research note.

Indeed, levels continue to grow at impressive rates. The U.S. Energy Information Administration reported that storage increased by 40 billion cubic feet to 3.611 Tcf the week of Nov. 7 from 3.571 Tcf the previous week. This was only 6% off the 3.831 Tcf figure posted last year at the same time and 6% below the five-year average of 3.848 Tcf. These figures are impressive given the major pull on storage levels this past winter.

While gas prices have increased ahead of heating season, NGL prices have taken a drastic downturn and resulted in frac spread margins experiencing downturns. The theoretical NGL bbl price fell 2% to $34.23/bbl at Conway with a 9% drop in margin to $19.29/bbl. The Mont Belvieu price experienced a sharper drop in price with a 4% decline to $33.03/bbl with a 12% decrease in margin to $17.80/bbl.

The most profitable NGL to make at both hubs remained C5+ at $1.09/gal at Conway and $1.12/gal at Mont Belvieu. This was followed, in order, by isobutane at 84 cents/gal at Conway and 69 cents/gal at Mont Belvieu; butane at 72 cents/gal at Conway and 66 cents/gal at Mont Belvieu; propane at 55 cents/gal at Conway and 47 cents/gal at Mont Belvieu; and ethane at negative 6 cents/gal at Conway and negative 5 cents/gal at Mont Belvieu.

The National Weather Service anticipates colder-than-normal temperatures along the East Coast and throughout the Midwest and into the Gulf Coast the week of Nov. 19, which should push gas prices further up.

Comments