The announcement that international trade sanctions will be lifted on Iran, combined with news that Saudi Arabia produced a record level of crude in June, saw both Brent and West Texas Intermediate (WTI) crude prices fall.

However, the anxiety over increased barrels (bbl) from Iran reaching the market may be greater than the reality. Barclays Capital and WoodMackenzie anticipate that Iran will introduce between 400,000 and 600,000 bbl/d in the next year-plus. This would offset decreased production from Canada, Mexico, China, Norway, Brazil and Columbia.

A larger concern is the Saudi Arabian production, which increased to 10.6 million bbl/d in June as the country continued its efforts to maintain and improve market share. As Saudi Arabian production further exacerbates global supply levels Brent and WTI prices are expected to remain challenged, though not necessarily lower than previously anticipated.

“We maintain our oil price view of $68 Brent in 2016, and are not in the camp that the market moves markedly lower from here as a result of [the Iranian nuclear] agreement,” Barclays Capital said in a July 15 research note. “We believe that the market will begin to adjust, whether through higher demand or lower non-OPEC supply in the next couple years, but only once Iran’s contribution and timing are made clear. For now, OPEC is already producing well above the demand for its crude, and this makes it worse. We do not expect the Saudis to do anything markedly different. Rather, they will take a wait and see approach… Reportedly, the Saudi position is that Iran should produce what it can, when it can, and then OPEC will decide what to do.”

It is likely both increased Saudi Arabian production and new Iranian production will cause U.S. crude producers to be less active in the next few years than forecasted just a year ago. Similarly, domestic liquids production is unlikely to make major gains during the next 12 to 24 months because of an unbalanced supply-demand dynamic.

An interesting scenario is playing out in the Marcellus Shale as some producers are beginning to focus on dry gas production over rich gas production because of the better economics it offers. It is unlikely that dry gas production will take off as producers focusing on gas are those with low production costs with access to the Gulf Coast.

It is doubtful that rigs being directed to gas over liquids would have a notable impact on NGL prices because of the size of the NGL storage overhang. It is possible that NGL prices could shorten the expected timeframe for a recovery if gas drilling was favored for an extended period in various regions of the country.

NGL prices continue to rise and fall on a pretty steady pattern most months with prices losing value early before improving late. The same was true this week as prices were largely up at both Conway and Mont Belvieu.

Ethane, which makes up the largest portion of the theoretical NGL bbl, was a mixed bag with a 3% increase at Mont Belvieu and a 1% decline at Conway. The Midcontinent price of 14 cents per gallon (/gal) was the lowest it has been since it was 13 cents/gal the final week of January 2014. By contrast the Mont Belvieu price of 17 cents/gal was the lowest it had been since April. Though neither price is profitable, forecasts still indicate that the market will improve throughout the year.

Though propane remains profitable compared to negative ethane margins, the former’s outlook is murkier compared to the latter. Indeed, purity ethane prices were stronger than the E-P mix at Mont Belvieu.

Ethane’s profitability at Conway finished just under 7 cents/gal, which is falling into a region of being profitable on only a notional basis once transportation costs are considered. Unlike ethane, propane cannot be rejected, which limits the potential solutions for how to handle the overhang. The options are put volumes into production, which is becoming increasingly limited in overall capacity; get it to an end-market, but the seasonal nature of the market makes this difficult; export it, but LPG exports have already been in their record levels for the past year; or burn it, which is occurring on a limited basis.

The good news for propane is that prices improved at both hubs and likely have hit their bottom relative to WTI earlier this summer, according to En*Vantage. “As long as crude prices stay above $50/bbl, we believe that Mont Belvieu propane prices relative to crude have hit a bottom…While it is true that we have too much propane in inventory, prices have already built that in, and it is hard to see propane prices getting any cheaper than we saw in the third week of June when propane was around 22% of WTI compared to 30% currently,” the advisory and investment firm said in its July 16 Weekly Energy Report.

Though NGL prices were largely up, frac spread margins were down at both hubs due to gains posted by natural gas prices. The most profitable NGL remained C5+ at 75 cents/gal at Conway and 79 cents/gal at Mont Belvieu. This was followed, in order, by isobutane at 20 cents/gal at Conway and 26 cents/gal at Mont Belvieu; butane at 19 cents/gal at Conway and 25 cents/gal at Mont Belvieu; propane at 7 cents/gal at Conway and 14 cents/gal at Mont Belvieu; and ethane at negative 5 cents/gal at Conway and negative 2 cents/gal at Mont Belvieu.

Natural gas storage injections approached normal levels for the summer the week of July 10 as the U.S. Energy Information Administration reported a 99 billion cubic feet increase. This pushed storage to 2.767 trillion cubic feet (Tcf) from 2.668 Tcf the previous week. This was 31% greater than the 2.114 Tcf posted last year at the same time and 3% greater than the five-year average of 2.694 Tcf. Cooling demand should be greatly increased next week as the National Weather Service’s forecast anticipates warmer-than-normal temperatures throughout most of the country.

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