What’s in store for commodities? More gas.

The U.S. Energy Information Administration (EIA) reported on March 2 that natural gas inventories rose during the week ended Feb. 24 for the first time ever during that week in February.

Storage in the Lower 48 rose by 7 billion cubic feet (Bcf), compared with the Bloomberg consensus of a withdrawal of 4 Bcf. That resulted in a total of 2.363 Tcf or 7.3% below the 2.55 Tcf figure at the same time in 2016. It is 14.3% above the five-year average of 2.068 Tcf.

Pearce Hammond of Simmons & Co. International anticipated the possibility of a historic injection. He noted that the withdrawal during the same week in 2016 was 67 Bcf and the five-year average was 132 Bcf.

The price of the hypothetical NGL barrel rose 7.5% in February at Mont Belvieu, Texas, compared to the previous month, masking sharp declines for the third straight week.

The crash of butanes since the start of February at Mont Belvieu (23% for normal butane, 27% for isobutane) and at Conway, Kan., (32% for normal, 27% for isobutane) has pulled the barrel down 16% at Mont Belvieu and 20% at Conway.

This time of year typically brings increased demand for normal butane from facilities blending gasoline. Not so this year, wrote En*Vantage Inc. analysts, because gasoline demand is slightly lower than at the same point in 2016.

En*Vantage attributes butane’s price drop relative to West Texas Intermediate crude oil to the end of the winter gasoline blending season. Asian winter demand is ending as well.

The analysts observe crude markets trusting that OPEC members will continue to adhere (for the most part) to their crude oil production cut agreement. The assumption is that members of the cartel will deepen cuts if oil falls below $50 a barrel (bbl).

“Unless oil markets show signs of tightening within the next month or two, then OPEC will need to extend its production cuts for another six months,” En*Vantage said. “If they don’t extend, then there is high probability that crude prices will break the $50 support level as traders liquidate their record long positions.”

While the U.S. winter continues to be warmer than natural gas producers were expecting, resulting in the weak storage draw and this week’s net injection, two factors are stabilizing gas prices:

  • Lower production than at the same point in 2016; and
  • Higher levels of exports to Mexico and growth from Cheniere Energy Inc.’s Sabine Pass LNG facility.

That is counterbalanced by a loss of market share to coal because of higher gas prices, and refilling of West Coast reservoirs that is allowing for an 86% increase in hydroelectric power generation compared to last year.

If the summer is cooler than last year, as predicted, En*Vantage sees trouble as increased production of natural gas from boosted drilling levels collides with a reduction in demand.

While the barrel took a hit in the past week, it is still 64% above the price recorded at this time in 2016 at Mont Belvieu, and 63% higher at Conway. All of the components are well above last year’s prices, especially Mont Belvieu ethane at 64% and Conway ethane at 76%.

Propane, which dropped below 70 cents per gallon (gal) at Mont Belvieu for the first time since December, is down 24% in the last four weeks. The drop at Conway was 29%, which could bode well for exports. En*Vantage expects exports to climb past 1 MMbbl/d in the next few weeks as lower prices make it more competitive with naphtha overseas.

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

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