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Pricing, economics
During second and third quarters 2011, price differentials between WTI and all other global price benchmarks widened to $20/bbl or more. Since WTI prices were no longer representative as the price basis for refined products and feedstocks after February 2011, we adjusted economic analysis models and we now use OPEC basket prices as the basis for evaluation of refined products and feedstocks. For more on our analysis of the divergence of WTI prices, please read two articles at www.petral.com/pcc_blog.
According to EIA statistics, crude oil production from Libya averaged 167,000 b/d during second-quarter 2011 and was 90% less than in January 2011. EIA statistics also showed key Organization of Petroleum Exporting Countries members did not increase production to make up for Libyan supply losses until June. Surprisingly, OPEC basket prices increased to a peak of $118.09/bbl in April but declined in May and June and averaged $109.04 /bbl in June. Prices in second-quarter 2011 were $35.62/bbl (46%) higher than in second-quarter 2010.
Yemen also experienced civil unrest during second-quarter 2011 and crude oil production declined to 75,000 b/d in June, or 175,000 b/d less than in January and February. Unrest in Yemen got much less media attention than events in Libya during second and third quarter but crude oil traders seemed to shrug off the loss of production from both countries during third-quarter 2011. OPEC basket prices were $106-112 /bbl during third-quarter 2011 and averaged $108.73 /bbl, or almost $4.00 /bbl less than in second-quarter 2011.
In April 2011, propane prices in Mont Belvieu averaged 145.1¢/gal and were 10.6¢/gal higher than in January 2011. Spot prices increased to 151-152¢/gal in May and June and averaged 149.5¢/gal for second-quarter 2011. Prices in second-quarter 2011 were 9.2¢/gal (6.5%) higher than in first-quarter 2011. In comparison, OPEC basket prices were 11.1% higher in second-quarter 2011 than in first-quarter 2011.
The price ratio of propane compared with OPEC basket averaged 56.1% in second-quarter 2011 compared with 58.6% in first-quarter 2011. Based on this approach, spot prices in Mont Belvieu were relatively weaker in second-quarter 2011.
A comparison of feedstock parity values provides a better indication of relative strength or weakness for the all important ethylene feedstock buyers. For second-quarter 2011, ethylene producers had an average incentive of 11.4¢/gal to use more propane rather than ethane or natural gasoline. The incentive to use more propane in first-quarter 2011 was only 2.4¢/gal. By this measure, propane prices were definitely weaker.
For third-quarter 2011, propane prices averaged 153.7¢/gal, and price ratios compared with OPEC basket crude prices increased to 59.4%. The increase in price ratios suggests propane prices were relatively stronger. Feedstock parity values changed more dramatically during third-quarter 2011 and underscored propane's relative price strength.
Throughout the third-quarter, propane maintained its incentive compared with natural gasoline, but the key shift in price-value relationships in the US Gulf Coast ethylene feedstock was propane's relative price strength compared with ethane. Ethylene producers saw disincentives of 3-4¢/gal in July and 10-15¢/gal in August and September. The market clearly began to respond to the supply-demand signals that propane availability would be tight for winter 2011-12.
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