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Hedge Natural Gasoline for balance of 2013

September 5, 2013

R^2,

 

Please provide your fundamental/technical thoughts on pentanes for the rest of the year?

 

Sincerely,

Upstream Producer

 

 

 

Comments/Color:

Quick Summary: Hedge Natural Gasoline for balance of 2013 to take advantage of the geopolitical bump in price.

 

Discussion: Thanks for your interest in an update on hedging NGL’s. NATURAL GASOLINE valuation vs. WTI has improved ~$1.70/bbl (4 cents/gal), but is still undervalued. In the last 2 weeks, oil has increased about $2/bbl, hence the $2.00+$1.70 = $3.70 (~9 cent) bump in price.

 

The overriding factor has to be the advance in crude, which has rallied $6 off the lows in the past week based on geopolitical considerations in Syria. It is our experience in trading oil over 25-30 years that the bark is almost always worse than the bite… that when the market builds in risk/fear premium to the market, only very rarely does it turn out that the risk premium is justified. The lone exception that I can recall was on August 1, 1990, when tanks and troops of Iraq moved to the border of Kuwait and oil moved up $1 to the low $20’s. 2 months later it went to $40. But that is the exception. The statistical likelihood (think March of 2003 after we went back into Iraq, as but one example) is that the market will give up gains. And considering that we are near record long speculation in oil, we still advise hedging into this rally and taking advantage of the increase in price.

 

Term                     Date      NATURAL GASOLINE midmarket

Bal 2013                8/15       $2.195

Bal 2013                8/29       $2.275


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