The propanemarket gained ground in the week ended May 6 based on expectations that export numberswould continue to grow in the months to come. Lower crude oil and natural gas pricesoffered a drag.
LoneStar pipeline grade propane at Mont Belvieu increased 3.40 cents to trade at 49.00cents per gallon in the week ended May 6, while non-LST propane gained 4.05 centsto trade at 49.60 cents per gallon. Prices at the hub in Conway, Kan., advanced3.75 cents and traded at 46.25 cents per gallon.
The fracspread increased 1.87 cents to 23.10 cents per gallon on May 5 and compared to 21.23cents per gallon on April 28, according to data from S&P Global Market Intelligence.Prices of natural gas fell 0.1% between the two dates while the price of the averageNGL barrel gained 4.6%.
The fractionationspread, or frac spread, is the difference between the weighted average price ofnatural gas liquids and the price of natural gas on a Btu basis. It is a generalindication of the profit margin that a natural gas processor would expect to receivewhen the liquids are fractionated.
Inventoriesof propane and propylene increased 659 Mbbl to 71.86 MMbbl in the week ended April29, according to the U.S. Energy Information Administration. The increase pushedthe surplus to the five-year average down to 28.05 MMbbl from 29.08 MMbbl in theprevious week.
The additionwas fairly small for the time of year and compared to an average weekly gain of2.09 MMbbl in the preceding four weeks.
Partof the reason for a drag on inventory building has been the increase in exports,which rose to 699 Mbbl/d in the week to April 22 and compared to 643 Mbbl/d in thepreceding three weeks. In the latest Supply and Disposition data from the EIA publishedApril 29, exports of propanewere shown to reach a record of 884 Mbbl/d in February and increased from the previousrecord of 866 Mbbl/d set in January.
J.D.Buss, trading manager at Twin Feathers Consulting Inc., warned that the rise inexports may not continue and that inventories could see a more normal build in nextweek's report.
"Internationalspreads strongly narrowed yesterday and we are projecting export loading for nextweek to be 200-225 Mbbls/day LOWER than this week," Buss wrote in a note onMay 4. "With that projected decrease in loadings, current domestic usage andpropane production remaining steady, a build next week in the 2.0 – 2.5 millionrange would be very plausible."
Propaneproduction fell 8 Mbbl/d to 1.775 MMbbl/d from a record 1.783 MMbbl/d in the previousweek.
Busssuggested that the 97 Mbbl/d increase to the record in the previous week raisesthe question of how much supply has actually been cut.
Inventorieswere also pressured by an increase in demand of 250 Mbbl/d to 1.10 MMbbl/d in theweek ended April 29. It is expected that cooler temperatures in the Midwest duringthe survey week had created additional heating demand, with the cold migrating towardthe East Coast in the current week.
Crudeoil prices weighed on the propane market slightly, with June futures falling $1.26during the week and settling at $44.66/bbl on May 6.
Crudeoil inventories increased 2.78 MMbbl in the week to April 29 and reached anothernew record of 543.39 MMbbl. Gasoline stocks were up 536 Mbbl while distillates weredown 1.26 MMbbl.
JohnTurner, senior trader at Heritage West Financial, noted that oil prices may remainon an upward path because demand for gasoline has firmed and because the wildfiresin Alberta have shut in oil sands production.
"Thecurve has turned to the upside in terms of supply/demand," Turner said. "Ithink we can trend very slowly toward $60/bbl by the end of the year. I don't thinkanybody is going to ramp up production until they see $60/bbl."
Oilfieldservices companies suggestedthat a bottom in drilling and service activity could take place in the second orthird quarters of 2016, but seemed to confirm the idea that the recovery would bevery slow until supply and demand balances tightened further.
"Ithink that clearly [our customers are] marginally more optimistic about things,"Dave Lesar, chairman and CEO of Halliburton, said during the company's first-quarterconference call. "I don't think we've seen that optimism translated into anyset plans to actively increase the rigs in the back half of the year; certainlythose discussions are taking place."
Junenatural gas futures finished the week with a loss of 7.7 cents and settled on May6 at $2.101/MMBtu.
The latestsix- to 10-day forecast from the National Oceanic and Atmospheric Administrationprojects temperatures to be below normal across most of the region between the RockyMountains and Ohio Valley. Much of the West Coast and East Coast will likely seentemperatures that are above normal.
of natural gas increased68 Bcf in the week to April 29 and beat the consensus expectations for a 66-Bcfinjection.
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