The uptick in crude oil prices and heating demand helped heavy NGL and propane prices improve, but ethane margins turned negative for the first time in a month due to the upswing in natural gas prices. Overall the news was a positive as the theoretical NGL barrel (bbl) price rose to its highest level at Mont Belvieu and its second highest price at Conway this year.

Whether these improvements in commodity markets will continue is debatable. West Texas Intermediate crude prices surpassed the $50/bbl price the week of Feb. 9 while the market prepared for a production downturn as producers pull rigs in reaction to lower prices. However, it will take time to rebalance the oversupplied market and prices are likely to continue to rise and fall through the rest of the first half of the year.

There is also the possibility that production will not drop off at the level some anticipate. Barclays Capital said they are skeptical of the announcement of cuts by producers. “It is our view that this may be what shareholders want to hear, but the real capex cut, especially now that prices have rallied by $10/bbl in the last two weeks, may be quite different. Thus, the market will continue to search for a new equilibrium. However, announced cuts in capital expenditure are not bringing in significant production cuts,” the investment firm said in a research note.

Consequently, heavy NGL prices will remain challenged until crude prices fully rebound. However, if NGL prices have hit their floors, the full rebound will be stronger than the last market downturn in 2008 as the overall economy continues to show signs of improvement, unlike seven years ago. Natural gasoline (C5+) prices hit their highest level in nearly two months at both hubs as the Mont Belvieu price improved 10% to $1.14/gal and the Conway price rose 11% to $1.12/gal.

The other NGL to make significant gains this past week was propane, which rose 8% to 53 cents/gal at Mont Belvieu and 9% to 50 cents/gal at Conway, as heating demand increased. This demand is tempered by the record-level storage overhang, which is nearly 20 million bbl greater than normal levels.

Even with additional LPG export capacity being brought online in the beginning of this year, analysts and other market observers anticipate it will not be enough to work off excess supplies. Additionally, Canada is oversupplied on propane, leading to huge plummets in prices and causing producers to send supplies to the U.S. Subsequently, propane prices may come under more pressure this summer when demand is traditionally at its lowest levels. Lower-than-normal prices will be needed to encourage more LPG exports.

The most profitable NGL to make at both hubs remained C5+ at 83 cents/gal at both hubs. This was followed, in order, by isobutane at 48 cents/gal at Conway and 41 cents/gal at Mont Belvieu; butane at 38 cents/gal at both hubs; propane at 26 cents/gal at Conway and 29 cents/gal at Mont Belvieu; and ethane at negative 1 cent/gal at both hubs.

The U.S. Energy Information Administration reported that natural gas storage levels decreased by 160 billion cubic feet the week of Feb. 6. This left the storage level at 2.268 trillion cubic feet (Tcf), which was 31% greater than the 1.726 Tcf figure posted last year at the same time when frigid Arctic temperatures greatly increased heating demand and 1% lower than the five-year average of 2.279 Tcf. Storage levels should decrease further this next week as the National Weather Service anticipates considerably colder-than-normal temperatures throughout much of the U.S.

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