Crude oil prices staged a strong rally in the past week, right up to the time when some guy in Houston started writing about crude oil’s strong rally in his weekly Frac Spread piece. Then prices crashed.
Reliable sources say the guy blames the Russians for messing up his article because ... well, why not blame the Russians? They’ll just shrug it off because they get blamed for everything lately.
In fact, the guy was not alone. Analyst Scott Nations on CNBC blamed the sudden 4.1% drop in the price of West Texas Intermediate (WTI) on July 5 from just over $47 per barrel (bbl) to $45.13/bbl on Russia’s unwillingness to support changes to the current production cut agreement. Other producers were hoping to deepen the cuts, Nations said, and traders were looking for a retreat on spending from the supermajors.
“Some of the buyers that we’ve seen recently were hoping that we were going to get some additional budget cuts, also,” Nations said. “Saudi Aramco said today that they’re going to lower prices for consumers in Asia come August. That indicates that the production scheme is just not helping prices.”
Neither is the “sky is falling” sentiment permeating market thinking.
“It is going to take more bullish statistics to convince the market that sub-$40 levels are not a possibility,” En*Vantage said in a report. “For the next several weeks we are projecting that the EIA [U.S. Energy Information Administration] will report neutral to bullish statistics for crude oil and products that should keep WTI above $40.”
But En*Vantage is wary of factors that could come into play in the fall:
- Refiners may not significantly reduce runs if product crack spreads stay fairly healthy;
- Saudi Arabia could reduce crude exports to the U.S. to help accelerate inventory declines during the summer months and minimize builds in the fall months.
“These are all big ‘ifs,’” En*Vantage said, “but it is possible that U.S. crude balances can improve over the next several months to keep WTI in the $40 to $50 range for the remainder of the summer.”
In the holiday-shortened week in which Hart Energy monitors NGL prices, ethane prices rebounded back to where they were around Memorial Day weekend. Perhaps it was the scent of barbecue that caused prices to perk up, but ethane rose 3.9% at Mont Belvieu, Texas, and 9.4% at Conway, Kan., in the past week.
It’s not just the mesquite. Exports and the advent of new cracking capacity are pushing demand for ethane, En*Vantage said, with the opening of Dow Chemical’s Freeport, Texas, cracker on the horizon in the third quarter.
The hypothetical NGL barrel rose 4.9% in the past week at Mont Belvieu and 5.4% at Conway. That broke a five-week string of declines at both hubs.
The average June price of the barrel was 5.5% above the June 2016 price at Mont Belvieu, and 4.6% higher at Conway. The just-ended second-quarter price at Mont Belvieu was 5.9% ahead of the 2016 2Q pace and at Conway, the second-quarter price was 5.2% higher than second-quarter 2016.
Propane rose 3.8% in the past week at Mont Belvieu and 3.9% at Conway. Butane was up 5.0% at Mont Belvieu and 5.8% at Conway. Isobutane rose 6.4% to regain its footing above 70 cents per gallon (gal) at Mont Belvieu and 2.2% at Conway to return to 80 cents/gal.
Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.
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