PIRA Energy Group's Weekly Oil and Gas Market Recap for the Week Ending January 6th

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PIRA Energy Group reports U.S. Crude Stocks Decline while Asian LNG Spot Prices Face Bearish Fundamentals

PIRA Energy Group

PIRA Energy Group

U.S. refiners brought down crude inventories for end-of-year tax purposes, sending overall commercial stocks tumbling for the largest weekly crude stock draw in over ten years.

NYC-based PIRA Energy Group reports that U.S. crude stocks declined week-on-week. PIRA also believes that bearish fundamental indicators could put a lid on soaring Asian LNG spot prices. In the U.S., the weekly U.S. gas storage draw was slightly larger than the market consensus. In Europe, support for day-ahead gas price will persist. Specifically, PIRA’s analysis of oil and natural gas market fundamentals has revealed the following:

Global Oil Markets

  • U.S. Crude Stocks Decline Week-on Week*

U.S. refiners brought down crude inventories for end-of-year tax purposes, sending overall commercial stocks tumbling for the largest weekly crude stock draw in over ten years. However, the four major products had another very large stock build.

*Weak Weather Fundamentals Will Continue to Exert Downward Pressure on Propane Prices*
In the U.S., weak weather fundamentals will continue to exert downward pressure on propane prices. In Europe petrochemical sector demand should stabilize prices. In Asia, ample availabilities from the Middle East are coinciding with adequate stocks, while lower contract price settlements and easing backwardation have done little to spur buying interest.

*U.S. Ethanol Prices Decline Week-on-Week*
The fiscal cliff resolution included an extension of several biofuels tax credits and supports. In particular, the biodiesel blending credit was extended to December 31, 2013 and will apply retroactively to 2012. For the week ending December 28, U.S. ethanol prices decreased for the third consecutive week, as front-month corn costs fell below $7 per bushel. PIRA’s model plant based on Chicago prices missed covering cash costs, and had the poorest margin in at least five years.

*U.S. Ethanol Output Declines Week-on-Week*
The U.S. imported a relatively high 87 MB/D (25.6 million gallons) of Brazilian sugarcane-based ethanol the week ending December 28, as fuel suppliers approached the end of the year needing advanced biofuel in order to satisfy their renewable volume obligations. U.S. ethanol output was 807 MB/D, down from 834 MB/D in the prior week, due in part to reduced production during the Christmas holiday.

Natural Gas Markets

*Weekly U.S. Gas Storage Draw Slightly Larger than Expected*
For the week ending December 28, the EIA-reported gas stocks draw was just slightly higher than the market consensus. Nationwide temperatures dropped to the lowest point yet of the heating season pushing the gas-weighted heating degree count over 200 for the first time. As a result, residential/commercial heating demand shot higher week-on-week.

*Day-Ahead Price Support to Persist for European Natural Gas Markets*
PIRA sees several reasons that the support for day-ahead prices will persist at current or higher levels in the next few weeks. Supply has reacted to lower demand in rapid form, with Dutch gas output cuts and LNG reloads balancing the loss of weather-induced demand in the past few weeks. European supply flexibility is on display for all to see, which is why a major price move is unlikely without a cold snap or supply surge, as it is simply too easy to take gas away from or put gas into the market.

*Bearish Fundamental Indicators Could Put a Lid on Soaring Asian LNG Spot Prices*
While year end (and beginning) holidays in Europe and Asia appeared to be stifling trading activity at the end of December, a couple of fundamentally bearish indicators have popped up that could put a lid on soaring spot prices in Asia for the winter. Prices have already dropped significantly in Europe due to a change of weather and a surge in pipeline gas, which has made LNG more expendable. Furthermore, Korean nuclear power generation rebounded significantly.

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) 542- 1677

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