OPIS Headlines

August 17, 2016
Surging Mont Belvieu C5 Mystifies NGL Industry

One of the more baffling events in the Mont Belvieu spot market this month has been the rapid rise in natural gasoline prices, which, from an industry standpoint, doesn't appear tied to clear market fundamentals.

Front-month non-TET C5 prices were in contango most of the summer, meaning that the out month held a premium to the front month. That relationship flip-flopped Aug. 1, when a premium developed for August C5, versus September, creating a backwardated market, where the front month is stronger than the out month.

Initially, that premium was just 0.875ct. It widened to 7cts on Aug. 4, and -- stunningly -- to 14cts on Aug. 15 in some of the steepest front-month/out-month backwardation ever witnessed for the product.

Meanwhile, also in a rare development, wets, or dated barrels, have been trailing the front month since Aug. 3.

"I've never seen consistently negative premiums for ratable barrels," said one trader.

A sudden surge in front-month prices sometimes speaks to fundamentals such as tightening supply, but since overall C5 supplies are viewed as abundant, traders are left puzzled.

"There is plenty of C5, very little blending, and no cracking," said another trader. "If anything, due to fundamentals, the (C5) price should be much lower. The only demand out of (the) USGC is for some limited exports, yet there are two naphtha imports headed here."

The two imports are Mediterranean light naphtha cargoes (low sulfur) that are believed to be destined for the U.S., despite closed arbs. As one NGL broker put it: "...it's not bullish for the overall market."

One theory pointed to as a possible driver of front-month C5 prices, but unconfirmed: Some players with variable NGL storage contracts who opted to buy front-month ethane and sell it forward at big premiums (contango) may be lacking room for other products in their storage accounts and are having to buy any- month C5 to cover sales. "I think a lot of storage has been filled with ethane so, customers may not have any flexibility on moving other grades," the second trader said.

Front-month natural gasoline was again volatile on Aug. 17, trading from $1.06- $1.10375/gal. The backwardation had pulled in but was still comparatively hefty, gauged most recently at 7.5cts, and talked today between 5-12cts.

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August 15, 2016
N.Y. Harbor Mogas Continues to Strengthen; Diesel Prices Hit Monthly Highs

New York Harbor gasoline prices were pocketing light gains for the third consecutive session early Monday but, overall, gasoline price advances have been capped throughout the 2016 summer driving season by the tremendous overhang in regional supplies. Distillates were once again seeing the sturdier advances, with Northeast diesel fuel popping back above the $1.40/gal threshold for the first time in over a month.

While New York Harbor gasoline supplies did see another draw in last week's U.S. Energy Information Administration's report, inventories on hand remain more than 14 million bbl above the five-year average for this time of year. So despite the three-day gains being witnessed, there still remains a lot of pressure on prices. And, gasoline will continue to fade into the background as the summer driving season winds down and demand lessens. The market also faces the phase- out of summer RVP season, with October RBOB futures prices running nearly 7cts/gal cheaper than September.

Prompt RBOB gasoline prices this morning were running just over $1.3865/gal, rising more than a penny from Friday's closing levels. Prompt premiums were so far unchanged amid thin dealings, with differentials at 40pts over the Merc. End-month material was slightly cheaper, talked on either side of 15pts over the paper index.

Talk was quiet for physical CBOB 7.8-lb. and 9.0-lb. material, as well. CBOB 7.8-lb. prices were above $1.35/gal, marking a fresh, weekly high, stepping over a penny higher with futures. Cash discounts were steady at 3cts under the Merc. The 9.0-lb. barrel was running 2.75cts cheaper than that.

ULSD prices were back above the $1.40/gal threshold for the first time in over a month this morning, rising more than 3.50cts to $1.4250/gal. Cash discounts for prompt barrels hadn't budged; barge and Buckeye Pipeline barrels were running roughly 2cts cheaper than the September ULSD futures contract, while offline prompt Cycle 41 material was slightly stronger, at a penny discount.

Interest in distillates will continue to grow as colder weather nears. And with the market in contango, it offers incentive to buy and store barrels now.

ULSHO prices were above $1.35/gal, with discounts at 9cts below the Merc. The high-sulfur grade was pricing 7.50cts cheaper than that, though no deals had been confirmed.

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August 2, 2016
Williams Sets Forth on the Road to a Comeback

In what was probably the most tumultuous quarter in its 108-year existence, Williams Companies (WMB) went through the wringer of its failed mega-merger with the Energy Transfer companies and comes out the other side with an evident determination to right the ship and chart an independent course.

Williams the corporation, and its closely allied MLP, Williams Partners (WPZ), announced with the 2ndQtr earnings release a package of strong measures to strengthen their credit profile, maintain WPZ's high distribution of 85cts/Qtr, and increase its distribution coverage:

--WMB slashed its dividend 69% from 64cts to 20cts a quarter, $2.56 to 80cts per share annualized. The action closely matches the draconian dividend cut by Kinder Morgan six months ago from 51cts to 12.5cts per quarter.

--WMB will redeploy the $1.3 billion in annual dividend savings into a major capital infusion into WPZ so the partnership's capital program will be largely self-financed. Under the program, they plan to inject $500 million into WPZ during 2016. Then, under the new Dividend Reinvestment Program (DRIP) launched now, they will contribute $1.2 billion in 2017.

--WMB and WPZ plan to jointly extricate themselves from a disastrous capital investment in Canada, an offgas processing plant linked to Canadian Natural Resources' Horizon upgrader at Fort McMurray. They are expecting to realize $1 billion from the sale, and are taking the non-cash, pre-tax impairments here in 2ndQtr that reflect the losses on the investment. Those impairments come to $747 million for WMB and $341 million for WPZ.

For WMB, the Canadian writedown leads to a net loss of $405 million for 2ndQtr. The loss is, for the most part, localized in the NGL & Petchem segment which comprises the Canadian operations plus the Geismar, La., steam cracker. All the rest of WMB's results come down to it from the partnership.

After the Canadian writedown, WPZ netted out a $90 million loss, compared to a $300 million profit in 2015. But distributable cashflow attributable to partnership operations actually grew slightly, from $701 to $737 million year on year (YOY).

It is in the partnership results that Williams reveals the performance of the major segments. The big one is the Atlantic-Gulf segment, which encompasses the Transco system, the most profitable interstate gas pipeline in the U.S. The performance measure Williams employs across the segments is "Modified Ebitda." By this measure, Atlantic-Gulf results declined 8% YOY from $389 million in 2015 to $357 million in 2016.

Next in line is the Northeast G&P segment, whick comprises the major gathering and processing systems in the Marcellus, Bradford, and Utica midstream operating areas. Here, modified Ebitda grew from $183 to $216 million YOY. These assets were formerly part of the Access Midstream entity that got absorbed into WPZ in 2015.

The Central operating area includes operations previously part of Access Midstream in Oklahoma, Arkansas, Louisiana and Texas. In this segment, modified Ebitda dropped 16% from $160 to $134 million YOY on account of a $48 million impairment charge related to a gathering system.

Last is the West operating area built around the Northwest Pipeline system that includes the whole array of midstream operations in Wyoming, western Colorado, Utah and the Four Corners region. West achieved a small gain in modified Ebitda from $150 to $158 million YOY, chiefly due to successful cost-cutting measures.

When the segment results are added up, and the Canadian loss in the NGL & Petchem segment is recognized, modified Ebitda for 2Q16 comes to $604 million, down 43% from $1,053 million YOY.

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July 7, 2016
Propane/Propylene Stocks Called to Rise by Over 2 Million Bbl: Survey

NGL market participants are expecting an average build to U.S. propane and propylene inventories of 2.04 million bbl for the week ending July 1, according to an OPIS survey.

The range of estimates spanned from builds of 1.5 million bbl to as high as 3 million bbl. The U.S. Energy Information Administration reported a 2.5-million- bbl increase last week, and nationwide stocks stood at 82.1 million bbl as of June 24.

Those on the high end of the range pointed to talk of cargo cancellations and recent works by Enterprise Products Partners. Enterprise began dock maintenance at its Gulf Coast LPG export facility in June, resulting in a slower flow of outbound cargoes, and has also been performing periodic splitter maintenance at Mont Belvieu in recent months.

Despite the potential for another sizable stock build, there were still seeds of support when sources looked at the longer-term picture.

"It will all balance out when EPC comes back to 100% and Phillips' [Freeport, Texas, export terminal] comes online in a couple months," a source said. "Then watch, we'll be nervous that winter inventories will be too low."

EIA's weekly inventory report will be released at 11:00 a.m. ET Thursday, delayed by a day due to the July 4 holiday in the U.S.

Learn the fundamentals of the NGL/LPG industry from the comfort of your office – sign up now for the brand new OPIS NGL Supply & Market Basics eLearning course. Led by OPIS NGL experts Diane Miller and Jessica Nesterak, this 10-module online training program will guide you through the basics of the NGL supply chain. Visit www.opisnet.com/events/elearning/ngl-supply-market-basics.aspx or call our eLearning team toll-free at 888-301-2645 for more details and to get started.


June 23, 2016
Global Crude Price Rebound Prediction Intact; Supply Decline, Demand Hike

The global crude price path is expected to maintain a steadily rising path, but not monotonic, through year-end 2018 on the back of increasing product demand growth and shrinking non-OPEC crude supplies, according to Macquarie Capital.

"We remain structurally bullish on global crude due to product demand growth that is currently tracking at 1.5 million b/d and non-OPEC supply declines that are reaching 1.2 million b/d from year-end 2014," the bank said.

The stage remains set for year-end 2016 demand/supply rebalance in the crude market, it said.

Strong demand growth and further sharp declines in U.S. supply are expected to tighten oil balances towards seasonal norms as soon as the fourth quarter of 2016, leading to modest draws across fiscal year 2017, Macquarie said.

A premature crude rally could prove self-defeating if it creates a fast supply response, the bank said. Although the path may prove challenging, the structural outlook remains positive.

Oil prices remain too low to incentivize sufficient reinvestment in supply, and global consumerism will sustain strong product demand growth, it said. Low oil prices may trigger a structural increase in supply disruptions.

Despite the structural positives, the bank expects crude price to make a short- term retracement to the low $40/bbl range due to the return of 2 million b/d of supply from Canada and Nigeria, grossly underappreciated year-to-date Iranian export (1 million b/d) growth and the risk of higher-than-expected Saudi Arabia supply this summer.

Aging of record net length among managed money participants and a strengthening or stabilizing U.S. dollar could keep a lid on crude prices.

A fundamental catalyst that could precipitate a short-term correction is the same one that broke the market in the second quarter 2014: Economic run cuts in European refining.

Macquarie said that while longer lead-time and lower-cost non-OPEC resources have proven remarkably resilient, there was some hope for accelerated base declines sneaking into global offshore supply.

"While we have historically not seen such a response to price from offshore supply, should this effect shift offshore, 2018 crude balances could prove surprisingly tight, even in a significantly higher price environment," it said.

Alternatively, in a $60/bbl WTI environment the bank anticipates in 2018, U.S. onshore could drive nearly 700,000 b/d of production growth. This would reverse the modest supply/demand deficit it anticipates in 2017.

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