Commodity prices remained on the upswing the week of April 25 as West Texas Intermediate (WTI) crude rose above $45 per barrel (/bbl) for the first time in 2016 as the US dollar is weakening, demand from China is improving, and supply-and-demand levels are balancing out. The American Petroleum Institute reported that crude stocks had fallen by more than 1 million bbl and the U.S. Energy Information Administration (EIA) reported that domestic crude production fell to its lowest level since October 2014.

Undoubtedly it’s a positive for the oil and gas industry to see crude prices improve, but the key aspect to a possible resurgence is what happens when prices improve above $50/bbl. This price level would likely result in more drilling rigs returning to the fields and increasing production. The market’s ability to sustain this price surge while dealing with increased production will help serve as the weather vane for any potential sustained resurgence.

According to Barclays Capital, WTI prices may struggle to remain at current levels. “Though physical indicators are supportive, oil market participants seem to be caught up in a broader risk-on attitude. Still-elevated inventory levels, the return of some disrupted supply, further boosts to Saudi and Iranian supply, and increased non-OECD product exports all have the potential to move prices lower over the next several months, especially if broader macro sentiment shifts. The market sentiment and fundamental shift may not align and may not come during this quarter anymore, but might instead come at the end of the summer. This scenario might present upside risk to our Q2 forecast and downside risk to our forecasts for the balance of the year and for 2017,” the investment firm said in an April 25 research note.

NGL prices are in a similar state with recent increases, but the near-term outlook remains similarly cloudy. If crude prices improve enough to support increased drilling, NGL production levels will also increase due to associated production.

Currently ethane is the NGL with the best chance to achieve market balance this year as widespread rejection is helping reduce inventory levels and new export terminals and cracking capacity are helping increase demand. Ethane prices at both Conway, KS, and Mont Belvieu, Texas, hit their highest level for the year with the Conway price improving 3% to 17 cents per gallon (/gal) and the Mont Belvieu price improving very slightly to 20 cents/gal. The Mont Belvieu price was the highest it has been since the week of Nov. 12, 2014, and the Conway price was the highest it has been since the week of March 25, 2015.

Propane prices also hit their highest prices at both hubs for the year as export demand has remained strong. The Conway price rose 5% to 45 cents/gal, the highest it has been since it was 46 cents/gal the week of Oct. 7, 2015. The Mont Belvieu price improved 3% to 47 cents/gal, its highest level since it was 49 cents/gal the week of Oct. 7, 2015.

Improvements in the light NGL values are helping to set higher floor prices for heavy NGL prices, which hit their highs for the year. The theoretical NGL bbl price rose 4% at Conway to $19.37/bbl with a 10% gain in margin to $12.97/bbl while the Mont Belvieu price rose 3% to $19.61/bbl with a 7% gain in margin to $12.67/bbl.

The most profitable NGL to make at both hubs was C5+ at 77 cents/gal at Conway and 73 cents/gal at Mont Belvieu. This was followed, in order by, isobutane at 50 cents/gal at Conway and 40 cents/gal at Mont Belvieu; butane at 38 cents/gal at Conway and 37 cents/gal at Mont Belvieu; propane at 29 cents/gal at both hubs; and ethane at 5 cents/gal at Conway and 8 cents/gal at Mont Belvieu.

The EIA reported that natural gas in storage increased by 73 billion cubic feet to 2.557 trillion cubic feet (Tcf) the week of April 22, from 2.484 Tcf the previous week. This was 52% greater than the 1.687 Tcf posted last year at the same time and 48% greater than the five-year average of 1.725 Tcf. This build was attributed to cooler-than-forecasted temperatures in parts of the U.S.

Frank Nieto can be reached at fnieto@hartenergy.com.

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