Frac Spread: Crude’s Mixed Message Keeps Prices Up In The Air

West Texas Intermediate (WTI) crude oil prices experienced another uptick the first week of March as they rose slightly above $50 per barrel (bbl). There are concerns that U.S. storage levels might reach capacity this year since the U.S. Energy Information Administration (EIA) reported on March 4 that storage increased by more than 10 million bbl (MMbbl).

“The U.S. crude balance structure that has bloated crude inventories to record levels continues unabated. Domestic crude supply is now up more than 1.5 MMbbl/d over the last four weeks, compared to last year, while crude imports remain stubbornly high, down only 550,000 bbl/d over the same period,” PIRA Energy Group said in a March 3 research note.

Barclays Capital stated in a March 2 research note that increased storage levels will pull WTI prices further down in the first half of 2015 with the contango widening due to the use of more expensive storage solutions.

However, En*Vantage Inc. stated these concerns may be overblown as Cushing storage levels have increased in the past few years. “Cushing stock levels are just 2 MMbbl below its all-time high level reached on Jan. 11, 2013, but Cushing working storage capacity has increased [more than] 6.5 MMbbl since that peak level was reached. At 70.8 MMbbl of working capacity there is still 21.6 MMbbl of spare capacity at Cushing,” the company said in its March 5 Weekly Energy Report.

NGL prices were largely up for the week with Mont Belvieu prices reporting stronger gains. Heavy NGL prices made strides with butane and iosbutane having the largest upward movement at either hub with 5% improvements based on improved crude prices.

Butane improved to 72 cents per gallon (gal) at Mont Belvieu, its highest price since it had the same value the week of Jan. 14. The Conway price rose 4% to 69 cents/gal, its highest price since the week of Jan. 21 when it was 72 cents/gal. The Mont Belvieu isobutane price of 74 cents/gal was the highest value it has had in 2015, but remains 13 cents/gal lower than the Conway price of 87 cents/gal, which seems to have plateaued.

Light NGL prices made smaller gains on the back of increased processing capacity in the Permian, Bakken and Marcellus/Utica shales along with increased heating demand. The EIA reported that propane extraction hit a record of nearly 1.1 MMbbl/d in February.

Propane prices rose 2% to 61 cents/gal at Mont Belvieu, its highest price since it was 69 cents/gal the week of Nov. 26, 2014. The Conway price rose 1% to 57 cents/gal, also its highest price since the week of Nov. 26, when it was 72 cents/gal. Despite the frigid temperatures experienced in the Northeast and Midwest, propane stock levels are much greater than at the same time last year and with winter rapidly approaching an end, prices could struggle this spring unless export demand remains strong.

Ethane prices were a mixed bag this week as they continued to trend with natural gas prices. Consequently the Mont Belvieu price rose 3% to 20 cents/gal while the Conway price dipped 2% to 18 cents/gal. This was in line with the 10% decrease in gas prices at Conway and the 5% improvement in gas prices at Mont Belvieu.

The theoretical NGL bbl rose 3% to $24.29/bbl with a 2% gain in margin to $13.07/bbl at Mont Belvieu. The Conway price rose 1% to $23.61/bbl with a 10% gain in margin to $13.93/bbl.

The most profitable NGL to make at both hubs remained C₅₊ at 86 cents/gal at Conway and 88 cents/gal at Mont Belvieu. This was followed, in order, by isobutane at 61 cents/gal at Conway and 43 cents/gal at Mont Belvieu; butane at 42 cents/gal at Conway and 40 cents/gal at Mont Belvieu; propane at 33 cents/gal at both hubs; and ethane at 1 cent/gal at Conway and negative 1 cent/gal at Mont Belvieu.

Natural gas storage levels had another large withdrawal the week of Feb. 27 with the EIA reporting a 228 billion cubic feet decrease. This left storage levels at 1.71 trillion cubic feet (Tcf) compared to 1.938 Tcf the previous week. This was 40% greater than the 1.218 Tcf figure posted last year at the same time and 8% lower than the five-year average of 1.853 Tcf. Storage injections should start sooner than later as the National Weather Service anticipates warmer-than-normal temperatures throughout the U.S. the week of March 11.