NGL prices fell this week as the crude price rally looks to have ended with West Texas Intermediate (WTI) prices falling two straight weeks, ending the week at about $45 per barrel (bbl). Unfortunately, it appears unlikely crude prices will have much of an uptick for the next several months. The good news is that prices aren’t expected to drop much lower.

“Crude markets have shifted to the ‘sell the rally mode’ as fears build that extremely high crude and product inventories will not subside this summer before the shoulder demand period begins in September. In the short-term there are no bullish catalysts to drive oil prices higher,” En*Vantage said in its July 14 Weekly Energy Report.

The firm did note that the long-term fundamentals for crude prices are very strong, with non-OPEC production consistently decreasing, and with global demand increasing with only 1.5 MMbbl/d of global spare capacity, according to the International Energy Agency.

“The biggest obstacles to any sustained rally in oil prices will be a function of how quickly high oil and product inventories decline, and that will take time. In the interim, we feel any serious breach of the $45/bbl level will be brief and that the most likely scenario is that WTI prices will continue to trade in the mid-$40/bbl range for the next several months,” the report said.

While crude struggles, gasoline demand remains strong due to low prices. This has helped maintain steady demand for butane for blending at refineries and lessened the blow to heavy NGL prices, which experienced the smallest decreases at both Mont Belvieu and Conway.

The fundamentals aren’t as strong for light NGL prices, as ethane and propane inventories are both very high. Ethane prices fell 13% to 19 cents per gallon (/gal) at Mont Belvieu, their lowest level since the beginning of April. Conway prices experienced an even larger decline as they were down 20% to 15 cents/gal, the lowest they’ve been since the beginning of May. This has resulted in widespread rejection and negative margins throughout much of the country. It should be noted that not all ethane volumes are rejected due to contract requirements and pipeline specifications, but in the current market, if it isn’t required to produce ethane, it is highly unlikely producers would do so for the foreseeable future until inventory overhangs are worked off.

Propane is in in a similar boat, although margins are still positive. However, margins might take a dip in the coming months due to the high inventory levels and slowing export market for LPG. Even with more LPG export capacity set to come online in the next few weeks, it is likely that the market will continue to stutter due to limited demand with reports of canceled cargo loadings along the Gulf Coast.

Overall, the theoretical NGL barrel fell 8% to $19.37/bbl at Conway, with a 16% decline in margin to $9.32/bbl. The Mont Belvieu barrel was down 7% to $20.14/bbl, with a 12% drop in margin to $10.24/bbl. The most profitable NGL to make at both hubs was C5,+ at 65 cents/gal at Conway and 64 cents/gal at Mont Belvieu. This was followed, in order, by isobutane at 39 cents/gal at both hubs; butane at 32 cents/gal at both hubs; propane at 20 cents/gal at Conway and 24 cents/gal at Mont Belvieu; and ethane at negative 3 cents/gal at Conway and 2 cents/gal at Mont Belvieu.

Natural gas storage levels rose by 64 billion cubic feet (Bcf), to 3.243 Tcf the week of July 8, up from 3.179 Tcf the previous week, according to the latest information from the U.S. Energy Information Administration. This was 19% greater than the 2.736 Tcf posted last year at the same time, and 22% greater than the five-year average of 2.657 Tcf.

Cooling demand should remain strong and help limit storage builds in the next week as the U.S. National Weather Service’s forecast anticipates hotter-than-normal temperatures throughout the country.

Frank Nieto can be reached at fnieto@hartenergy.com.

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