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The Hot Cash-and-Carry Trade in Energy

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Very low ethane cash prices and the steep contango shape of the forward curve in early August ’24 created an incentive for storage operators to buy as much ethane on spot markets as possible and sell the commodity forward. This dynamic was just confirmed (sort of) by ONEOK (OKE) in its latest earnings.

In the company’s 3Q24 update, OKE acknowledged a $45MM decrease in 3Q earnings on sales of purity NGLs held in inventory (likely ethane). OKE “expects an earnings benefit on the forward sales of inventory over the next two quarters.”

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East Daley Analytics covers ethane market trends in the monthly Ethane Supply & Demand Report. The steep price contango in early August is shown in the figure.

The market dynamic in ethane bodes well for others that secured storage space, including asset operators like Enterprise Products (EPD), Energy Transfer (ET) and Targa Resources (TRGP). These companies likely traded around their valuable storage facilities in 3Q24.

While the price contango is profitable for asset owners, the incentive to store more ethane is ultimately bearish for price. EDA believes ethane storage builds will lower ethane prices at Mont Belvieu vs the current forward curve, as shown by the green and yellow squares in the second graph. Lower ethane prices would then incentivize more ethane rejection at the end of 2024 and into 2025. See the Ethane Supply & Demand Report for more coverage. – Rob Wilson Tickers: EPD, ET, OKE, TRGP.

 

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About the AuthorRob Wilson

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