Frac Spread: Price Volatility Reflects Events In Houston, Venezuela

The Mont Belvieu, Texas, ethane price tumbled to a 15-month low last week and butane fell to its lowest point in 20 months last week. Pentanes-plus countered the trend by continuing a six-week rally that has returned it to its level of October.

EnVantage Inc. had been predicting a price rebound in the second half of the year, but now backed away from that position. Ethane’s high prices have discouraged exports and five major cracker projects on the Gulf Coast (new, expansions and restarts) have been delayed significantly, meaning that the wait for an uptick in demand will be a long one. The hike in pentanes-plus could be related to increasing diluent demand in Canada that cannot be met by higher Canadian production alone.

President Nicolás Maduro of Venezuela, presiding over an epic national meltdown that has pulled virtually his entire population of 32 million into poverty, inadvertently lent a helping hand to U.S. oil prices this week.

U.S. exports fell by an average of 506,000 barrels per day (bbl/d) in the week ending March 22 compared to the previous week, the U.S. Energy Information Administration (EIA) reported. Also, refinery inputs dropped by 392,000 bbl/d. Crude oil shipments from the Houston Ship Channel were hobbled by a petrochemical storage tank fire at the Intercontinental Terminals Co. facility in Deer Park but that setback was combined with an unexpected jump in inventories.

Crude stocks rose by 2.8 million barrels in the week, the EIA reported, in sharp contrast to analyst expectations of a 1.2 million-barrel withdrawal. The surprising report jolted traders on March 27, who bid the price of West Texas Intermediate (WTI) down by almost 1% to $59.41 per barrel.

But Venezuela experienced its own calamity when the second power blackout in a month struck on March 25. Puerto José, its main oil export port, has been shut down since.

On March 27, the United Nations quietly delivered a report to Maduro and opposition leader Juan Guaidó assessing the damaged country and begging the two to stop using humanitarian aid as a political weapon. Maduro’s government has erected blockades to stop supplies from entering the country but the report also blamed the efforts of Guaidó, recognized by the U.S. and some 50 other countries as the legitimate interim president, to leverage the situation to his own advantage as the two wrestle for control.

Venezuela’s situation is “the kind of collapse rarely seen outside war zones,” the New York Times reported, citing a senior United Nations official.

With Venezuela’s oil imports limited, WTI’s price hit was cushioned—at least for the moment. Traders also have their eyes on manufacturing data, which is pointing to an economic slowdown not just in the U.S., but in Asia and Europe as well. China’s slowing growth—still substantial at an expected 6.5% but no longer turbocharged in the double-digit realm—has been clouding the outlook both for oil and LNG exporters in the U.S.

In the week ended March 22, storage of natural gas in the Lower 48 experienced a decrease of 36 billion cubic feet (Bcf), the EIA reported, compared to the Stratas Advisors prediction of a 46 Bcf withdrawal. The figure resulted in a total of 1.107 trillion cubic feet (Tcf). That is 20.5% below the 1.392 Tcf figure at the same time in 2018 and 33.2% below the five-year average of 1.658 Tcf.

Technical issues with Hart Energy’s data provider do not allow us to post the price of ethane from Conway, Kan., this week, nor can we calculate the price of the hypothetical Conway NGL barrel. We apologize for the inconvenience and will update the NGL price table as soon as possible.