NGL prices followed the swoon in crude oil and natural gas prices as 2018 ended, but margins finished the year strongly.

The hypothetical barrel (bbl) at Mont Belvieu, Texas, slumped below $25 to a 17-month low, dragged down mostly by an 11% drop by C5+ during the seven-day tracking period since the most recent Frac Spread. But tumbling gas prices meant that margins improved for all except C5+ and propane, which narrowed by less than 1%.

Ethane prices showed virtually no change at either Mont Belvieu or Conway, Kan., but stronger exports from the Gulf Coast and the lower natural gas price triggered a sharp rebound in margins. Mont Belvieu rose from the previous weekly average of 1.7 cents per gallon (gal) to an eight-day average of 4.5 cents/gal, while Conway posted a positive margin. EnVantage Inc. expects another surge in ethane demand when Formosa’s Point Comfort, Texas, cracker starts up sometime in second-half 2019.

Giddy yet? Probably not if you’ve been watching the stock market implode. The correlation with oil’s dive below $50/bbl is not a coincidence.

“The equity markets are taking notice in crude price movements to see if they are a leading indicator for the direction of global economic growth,” said EnVantage. “There is still considerable fear in the market whether global economic growth in 2019 will be strong enough to soak up excess crude supplies and whether OPEC+ will able to execute their production cuts. The answer to these questions may not be known until the second-quarter 2019 at the earliest.”

The analysts are not optimistic about a lift in oil prices in the first quarter, citing an expected increase in U.S. crude production. More ominously, EnVantage anticipates announcements that producers will curtail their drilling plans. Uncertainty surrounding trade talks with China and rate hike decisions by the U.S. Federal Reserve could pull oil prices, either way, depending upon outcomes.

What will it take for a happy bounce in the second and third quarters? For EnVantage, the ingredients are:

  • Production cuts as promised by OPEC et al;
  • A slowdown in U.S. production growth;
  • Positive steps in trade talks; and
  • Fewer rate hikes by the Fed.

If the recipe comes together, then EnVantage envisions $50+/bbl in the second quarter and a movement toward $60/bbl in the third quarter.

In the week ended Dec. 28, storage of natural gas in the Lower 48 experienced a decrease of 20 billion cubic feet (Bcf), the U.S. Energy Information Administration reported. The figure resulted in a total of 2.705 trillion cubic feet (Tcf). That is 14.3% below the 3.155 Tcf figure at the same time in 2017 and 17.2% below the five-year average of 3.265 Tcf.

Joseph Markman can be reached at jmarkman@hartenergy.com or @JHMarkman.

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