Frac Spread: NGL Prices Rise, But Geopolitical Risk Haunts Outlook

Of all the issues raised by the recent mass killing at a nightclub in Orlando—presidential campaign politics, gun control, hate crimes—the price of oil and gas would not appear to be one.

But the shooter’s identification with ISIS cast it as an act of terror, which groups Orlando with last week’s terror attack that killed four in Tel Aviv’s upscale Sarona Market and the car bombing in Istanbul by Kurdish separatists. Terrorism and the instability terrorists seek to create can negatively impact the global economy, which lowers demand for oil, Stratas Advisors said in its weekly analysis.

Demand is already low, of course, as emerging economies like China decrease industrial capacity and others, like Brazil and Russia, struggle with low commodity prices. Stratas Advisors shifted its view of the geopolitical impact on the price of Brent crude from positive to neutral last week.

And supply continues its worrisome trend. Crude inventories actually fell by 933,000 barrels (bbl) in the last week, the U.S. Energy Information Administration (EIA) reported. But that drop was less than half the 2.3 million bbl (MMbbl) consensus decrease expected by analysts. The Stratas projection was a decline of between 2.5 MMbbl and 3.5 MMbbl.

Buoyed by the rise of oil and natural gas prices, the price of the hypothetical NGL barrel rose for the first time in three weeks to $21.39 at Mont Belvieu, Texas, and to $21.31 at Conway, Kan. That marks a 6% rise at Mont Belvieu over the average price in the same week a year ago, and a 13.8% increase at Conway.

NGL are separated, or fractionated, for various market purposes. Hart Energy rejoins them in a 42-gal spreadsheet “barrel” to illustrate the overall performance of the sector.

Whether the barrel will remain over $20 is uncertain as supply continues to outpace rising demand. A year ago, the barrel experienced its last average weekly price above $20 during this same week and did not return to this level consistently until a month ago.

Ethane continued its rally, up 12.6% for the week and 31% over a year ago to $23.79 cents per gallon (gal) at Mont Belvieu, and 20.6% for the week and 28.6% over a year ago to $20.70 at Conway. This has more to do with higher natural gas prices. The benchmark Henry Hub price cracked $2.50 per million Btu in the past week.

Propane rose at both hubs, though it remained below its level in May. Still, the Mont Belvieu price averaged 26.7% above the same week last year and Conway’s price was 42.8% ahead.

The price of propane at Mont Belvieu is 55.5% higher than it was at its low point for this year in January. Conway’s propane price is 64.3% above its low point, also in January.

Butane rose slightly, adding to its string of over 60 cents/gal at both hubs for the fifth straight week. The Mont Belvieu price was 16.7% above its price for the same week last year, and Conway’s price was 32.6% ahead. Butane at Mont Belvieu is now 39% above its low point for the year, set in January, and Conway’s price is 41.7% higher.

Isobutane was steady at Mont Belvieu, rising only slightly to 65.7 cents/gal. It dipped by less than 1 cent/gal to 72.6 cents/gal at Conway, with the price weakening as the week rolled on.

The reverse was the case for C₅₊, with Mont Belvieu off slightly and Conway picking up less than 1 cent/gal. The price remained above $1/gal for the fourth consecutive week at Mont Belvieu and the fifth week in a row at Conway.

U.S. gas storage rose by 69 billion cubic feet (Bcf) to 3.041 trillion cubic feet (Tcf) during the week ending June 10, the EIA reported. That is slightly higher than the Bloomberg consensus forecast of 66 Bcf, and well below the 87 Bcf five-year average build.

The total is 26.3% above the mark of 2.408 Tcf set during the same time last year. It’s also 30.1% higher than the 2011-2015 average of 2.337 Tcf.

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