PIRA Energy Group’s Global Oil Market Update for the Week Ending July 16 Shows U.S. and Japanese Refinery Runs Rise

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NYC-based PIRA Energy Group reports that U.S. refinery runs increased on the back of more attractive margins, pushing crude stocks lower and product stocks higher. In Japan, crude runs also rose, but crude stocks declined.

PIRA Energy Group
Taking advantage of attractive margins, refiners have pushed crude runs up to the highest weekly rate since 2007. Crude stocks saw the largest weekly decline of the year, but overall stocks rose, due to the build in product stocks.

NYC-based PIRA Energy Group reports that U.S. refinery runs increased on the back of more attractive margins, pushing crude stocks lower and product stocks higher. In Japan, crude runs also rose, but crude stocks declined. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

*High Crude Run Rate Pushes U.S. Product Stocks Higher and Crude Stocks Lower.

Taking advantage of attractive margins, refiners have pushed crude runs up to the highest weekly rate since 2007. Crude stocks saw the largest weekly decline of the year, but overall stocks rose, due to the build in product stocks. Most of the product inventory increase was in the four major products, as the July 4th holiday is typically characterized by weak demand.

*Japanese Crude Runs Continue to Rise.

With refiners winding down maintenance, Japanese crude runs rose strongly week-on-week, but remain below last year’s levels. Despite the increase in runs, crude stocks rose modestly for the second straight week.

*No Changes in Fracking Policies.

Overall, in 2Q12, there were no developments that suggest a policy-driven slowdown in U.S. unconventional gas and liquids production growth. On the federal level, the EPA finalized rules under the Clean Air Act regulating Volatile Organic Compounds and air toxic emissions from fracked natural gas wells. The EPA also released long-awaited guidance on the regulation of diesel use in fracking activities. In addition, the DOI issued rules about fracking on federal lands. On the state level, both Oklahoma and Ohio passed chemical disclosure laws. A court decision in Colorado could have far-reaching implications as tort cases alleging contamination from fracking activities will be harder to prove.

*Electric Vehicles Look Like a Niche Product for the Near Future.

In the past year, the outlook for electric vehicles and plug-in hybrids (collectively, “EVs”) has deteriorated both in the U.S. and globally. A combination of slow sales among early entrants, worldwide economic problems, and a reduced appetite for policy support have dimmed the likelihood of rapid mass-market EV adoption. As a result, PIRA now forecasts that EVs will take a smaller share of vehicle miles traveled (VMT) over the foreseeable future, with most of the penetration concentrated in Western Europe and China.

*Propane Stock Builds Have Moderated.

In the U.S., the pace of propane stock builds has moderated significantly since the end of June. Over the next few weeks, the year-on-year stock excess will continue to narrow. Midcontinent ethane clearly has containment issues. The European market is balanced and possibly tight in light of outbound arbitrage. Incremental spot availabilities from Yanbu may soften the Asian market.

*U.S. Ethanol Prices Rise Week-on-Week.

U.S. ethanol prices continued to rise during most of the week ending July 6. The price largely tracked corn costs, as the harvest is threatened by high temperatures and severe drought in many parts of the Corn Belt. Cash manufacturing margins improved last week as ethanol prices advanced faster than corn costs, and the prices for co-product DDG reached a multi-year high.

*U.S. Ethanol Production Continues Falling.

U.S. ethanol output plunged to a two-year low of 821 MB/D last week as more plants shut down or ran at reduced rates due to poor manufacturing margins. Last week’s output was down 4.2% from the previous week and 10.8% lower than just four weeks earlier. Stocks declined by 761 thousand barrels to 19.5 million barrels, the lowest level since the first week of 2012. The output of ethanol-blended gasoline dropped to 8.532 MMB/D from a record 8.632 MMB/D during the previous week.

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

Click here For Additional Information on PIRA’s global energy commodity market research services.

PIRA Energy Group
3 Park Avenue, 26th Floor
New York, NY 10016
212-686-6808
jsteele(at)pira(dot)com

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