The hydrocarbon commodity market remains challenged with West Texas Intermediate (WTI) crude oil falling below $30 per barrel (bbl) and natural gas remaining at about $2 per million Btu (MMBtu). However, NGL prices improved in early February as the market benefited from increased heating demand along with strong export demand.

While it is possible that NGL prices hit their floor in January, it is likely that more volatility could impact the market as WTI crude may not have found its bottom. Until some semblance of consistency takes hold in the crude market, NGL prices will remain challenged. These challenges will increase as the spring shoulder season approaches. Winter temperatures are expected to turn warmer, and there are reports that LPG exports to Asia and Europe may decrease in the coming months.

The good news is that it is possible that the market overreacted to news that crude storage at the Cushing, Okla., hub was rapidly increasing. The U.S. Energy Information (EIA) reported that oil stocks rose by 523,000 bbl. While there have been murmurings that storage at the hub was full, this is not the case based on available data.

“Cushing is not full. According to the U.S. Department of Energy, shell capacity at Cushing is 87 MMbbl, working capacity is 73 MMbbl vs. the reported 64.7 MMbbl,” Tudor, Pickering, Holt & Co. said in a research note.

The investment bank noted that PADD III (Gulf Coast) inventories are well below the working tank capacity and that interconnectivity between Cushing and the Gulf Coast will allow PADD III to absorb incremental crude stocks. Certainly the increase in volumes at Cushing isn’t good news for a struggling crude market, but neither is it the doomsday scenario the sudden decrease in WTI prices would lead you to believe.

North American diluent demand is also falling lower, as decreased oil prices depress production from the Canadian oil sands. The export market for diluent may see an uptick in the coming months though with demand improving in Asia and Venezuela.

Flat natural gas prices are likely to continue throughout the rest of the winter as the recent cold front in the Northeast and Midwest arrived too late in the season to work off the huge storage overhang.

While demand levels are increasing, there is growing evidence that supplies are decreasing as fewer efficiency gains to be created in 2016 than there were in 2015 and production out of the Northeast may be curbed with little new take-away capacity set to come online until the fourth quarter—after storage’s typical peak season.

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