Crude oil prices lost some luster this week as they fell below $40 per barrel (/bbl) as crude imports rose and pushed inventory levels towards record highs. Prices should begin to experience another uptick in the coming months when summer refinery runs increase. Imports were up because of the drop in domestic production while refining demand remains solid.
In the meantime, the drop in crude prices resulted in NGL prices largely falling throughout the U.S. Conway NGL prices were down across the board while prices at Mont Belvieu were largely down aside from a few modest improvements. The largest decline at both hubs was for propane, which fell 4% as inventory levels rose slightly. Stock levels are expected to increase through the injection season, but export demand should help to minimize these injections. As it stands propane margins have tripled in value throughout this winter and should remain solid through the spring and summer.
Meanwhile Conway ethane margins are very thin as prices fell 9% to 13 cents per gallon (/gal), which combined with higher gas prices caused by lower production levels left the margin at only 1 cent/gal. Mont Belvieu margins are higher, but are likely negative once logistic costs are factored in.
The performance of crude and NGL prices over the next month or two will help provide an indication of whether or not the market has created a floor price. Once the summer begins, cooling demand along with increased ethane cracking and export capacity will help to increase demand.
The theoretical NGL bbl price fell 4% at Conway to $16.80/bbl with a 10% drop in margin to $10.33/bbl and the Mont Belvieu price dropped 1% to $18.55/bbl with a 6% drop in margin to $11.72/bbl. The most profitable NGL to make at both hubs was C5+ at 68 cents/gal at Conway and 70 cents/gal at Mont Belvieu. This was followed, in order, by isobutane at 39 cents/gal at Conway and 36 cents/gal at Mont Belvieu; butane at 30 cents/gal at Conway and 33 cents/gal at Mont Belvieu; propane at 24 cents/gal at Conway and 27 cents/gal at Mont Belvieu; and ethane at 1 cent/gal at Conway and 6 cents/gal at Mont Belvieu.
Natural gas storage levels fell by 25 billion cubic feet to 2.468 trillion cubic feet (Tcf) the week of March 25 from 2.493 Tcf the previous week. This was 68% greater than the 1.466 Tcf posted last year at the same time and 52% greater than the five-year average of 1.625 Tcf.
Frank Nieto can be reached at fnieto@hartenergy.com
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