The belief that a floor price for crude was set last month is taking hold in the market as West Texas Intermediate (WTI) crude prices rose above $40 per barrel (bbl) for the first time in 2016 despite inventory levels continuing to increase.

The belief is that an agreement will be reached at a meeting in Qatar between OPEC and other major oil producers to freeze current production levels. As it currently stands there are some positive takeaways in the current marketplace with the most prominent being that low crude prices are resulting in increased gasoline demand. However, while there has been a slowdown in inventory builds, storage continues to increase and until there is better equilibrium in the market the likelihood of a sustained rally isn’t that strong. In addition, global demand doesn’t appear to be supporting a price rally either, according to Barclays Capital.

“Incoming data on the supply side have helped sow the seeds of a recovery. Incoming demand growth data for this year thus far are, however, softer than in the same period last year. Oil demand in China, the U.S., Japan and Brazil fell in January, as per preliminary estimates. Demand in Russia and India stands as an exception, showing strong growth in January; however, a swift price recovery could put growth at risk here, as well. In our view, at least two quarters of prices below $40 per bbl., as implied by our forecasts, are required to balance the oil market. If current price gains gather more momentum and hold, this would delay the balancing process for oil and bring downside risks to our 2017 oil price forecast,” the investment firm said in a March 14 research note.

Barclays Capital added that the potential of an oil production freeze was questionable as the potential participants in such an agreement have given off mixed signals with perhaps the most important player in such an agreement – Iran – steadfastly saying they would not participate. The market appears to be hopeful over comments from Saudi Arabia and other OPEC members that Iran’s lack of participation was not a deal breaker. Should an agreement be reached then a crude rally should continue, at least for a few more weeks. On the flip side, if an agreement isn’t reached and no further talks are scheduled over such an agreement than it is likely that crude will tumble yet again. The big question is if prices fall do they hit the floor that the market is assuming was set last month or do they push below that level?

In the meantime, NGL and natural gas prices improved on the back of the surging crude market with the theoretical NGL bbl. price increasing 5% to $17.30 per bbl. at the Conway, Kan., hub with a 3% gain in margin to $11.35 per bbl. The Mont Belvieu, Texas, hub price rose 6% to $18.55 per bbl. with a 3% gain in margin to $11.90 per bbl.

Gas prices rose 9% at Conway to $1.63 per million Btu (MMBtu) and 12% to $1.82 per MMBtu at Mont Belvieu. These prices helped to largely support frac spread margin gains across the board at both hubs with the big winner being ethane, which regained its status as the favored ethylene feedstock.

The Mont Belvieu price rose 15% to 18 cents per gallon (gal), its highest level since the first week of November 2015. The Conway price experienced a larger gain as it rose 17% to 14 cents per gal. Ethane prices are also benefitting from unplanned outages that have occurred in the past month, which has increased demand.

The news was still positive for propane prices as they rose 5% at both hubs, but there is concern as there are reports that propane export contract liftings have been cancelled as export demand is slowing. This would coincide with consecutive weeks that propane stocks have fallen at a lower-than-expected rate.

Heavy NGL prices experienced smaller gains than their light counterparts but heavy NGLs remain the most valuable products in the bbl. with C5+ having a margin of 66 cents per gal at both hubs. This was followed, in order, by isobutane at 44 cents per gal at Conway and 38 cents per gal at Mont Belvieu; butane at 33 cents per gal. at Conway and 35 cents per gal at Mont Belvieu; propane at 28 cents per gal at Conway and 30 cents per gal. at Mont Belvieu; and ethane at 4 cents per gal. at Conway and 6 cents per gal at Mont Belvieu.

It appears that the spring shoulder season began a week early as the U.S. Energy Information Administration reported that natural gas storage levels fell by 1 billion cubic feet to 2.478 trillion cubic feet (Tcf) the week of March 11. This was 67% greater than the 1.48 Tcf figure posted last year at the same time 48% greater than the five-year average of 1.671 Tcf. The National Weather Service’s forecast for the week of March 23 anticipates warmer-than-normal temperatures on both coasts with normal spring temperatures in the rest of the country.

Frank Nieto can be reached at fnieto@hartenergy.com

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