Since the commodity price downturn that started last year, crude oil and NGL prices have recoupled. This has largely been a negative for the NGL market with West Texas Intermediate (WTI) prices down more than 50% from last year. However, even as WTI has fallen in value the last two weeks NGL prices have posted gains.

According to En*Vantage Inc., this may be indicative of NGL prices having hit their floor as long as WTI doesn’t suffer another sharp drop in value for the remainder of the year. WTI crude hit its summer low of this week as it fell below $50 per barrel (/bbl) while NGL prices were up across the board with Mont Belvieu propane hitting its highest price of the season at 41 cents per gallon (/gal). The Conway price hit its previous high for the summer at 34 cents/gal.

“Propane prices haven’t dropped proportionately with crude prices. On June 24, crude was around $60/bbl while propane was trading at 36.7 cents/gal at Mont Belvieu. On [July 22], when crude prices were trading around $49/bbl, propane was at 39.4 cents/gal, an indication that propane was probably oversold. 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 33% currently,” the advisory and investment firm said in its July 23 Weekly Energy Report.

It is likely that propane prices will still face more trouble in the next year as current stock levels are more than 80 million bbl, compared to the five-year average of 65 million bbl for propane inventories heading into winter. The good news for propane is that more than 200,000 bbl/d of propane export capacity will be coming online in the next year. However, unless there is very high heating, crop-drying and export demand in the fall and winter, it is likely that propane will exit the 2016 heating season at record levels.

U.S. ethane cracking capacity is operating at full capacity, which helped support modest price gains at both Mont Belvieu and Conway. These gains weren’t enough to turn frac spread margins positive, but prices are expected to increase before the end of the summer in order to attract volumes to the Gulf Coast. It is unlikely that margins will remain consistently positive until additional ethane cracking capacity is brought online in the next three years.

The theoretical NGL bbl price rose slightly at Conway to $17.42/bbl with a 1% gain in margin to $7.01/gal compared to a 1% gain at Mont Belvieu to $19.51/bbl with a 1% gain in margin to $8.92/bbl. Margins were able to improve at a greater rate this week due to flat natural gas prices caused by large inventory levels.

As a result margins were largely up with C5+ once again leading the way as the most profitable NGL to make at 75 cents/gal at Conway and 78 cents/gal at Mont Belvieu. This was followed, in order, by isobutane at 21 cents/gal at Conway and 28 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 15 cents/gal at Mont Belvieu; and ethane at negative 5 cents/gal at Conway and negative 2 cents/gal at Mont Belvieu.

The U.S. Energy Information Administration reported that natural gas storage levels rose by 68 billion cubic feet to 2.828 trillion cubic feet (Tcf) the week of July 17 from 2.767 Tcf the previous week. This was 28% greater than the 2.206 Tcf posted last year at the same time and 3% higher than the five-year average of 2.747 Tcf. Cooling demand should remain strong the week of July 29, as the National Weather Service anticipates warmer-than-normal temperatures throughout the country.

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