PIRA Energy Group's Weekly Oil Market Recap for the Week Ending October 27th, 2013

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Asian oil market fundamentally supportive, but Atlantic basin imbalances remain.

PIRA Energy Group

PIRA Energy Group

After recovering in the first half of October, crude oil prices have come under pressure once again.

NYC-based PIRA Energy Group reports that Asian oil markets are fundamentally supportive, but Atlantic basin imbalances remain. On the week, U.S. crude stocks built again, while Japanese crude stocks drew slightly. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Asian Oil Market Fundamentally Supportive, but Atlantic Basin Imbalances Remain

After recovering in the first half of October, crude oil prices have come under pressure once again. Global physical balances are weak with stock building in progress which is undermining crude oil price time spreads. The stock builds have been larger than anticipated because refinery runs have been lower as margin pressure has lasted longer. The data out of China looks better and economic downside risks have lessened. Asian middle distillate cracks have held up relatively well and demand strength should continue to be supportive.

U.S. Crude Stocks Build Again

U.S. crude stocks built for the week ending October 18, the fifth consecutive weekly increase. Some 70% of the build has been at the Gulf Coast and another 22% occurred in PADD II. Crude price time spreads signaled the October builds and they are doing the same for November. The expected tightening of global crude balances in November has been postponed by significantly lower crude runs than what was anticipated earlier. Crude markets in Europe are quite weak with a substantial overhang of North Sea barrels pressuring spreads, especially with the recent sharp increase in long haul freight.

Storm Impacts and Turnarounds Continue

This week saw the impact of Typhoon Wipha, while next week will reflect Typhoon Francisco. Japanese runs dropped back further, but should soon start turning higher. Implied crude imports stayed low and crude stocks drew slightly. Gasoline demand was relatively strong, with lower yield that drew stocks. Gasoil demand fell back, but yield was much higher and stocks built off record lows. Refinery margins remain soft.

U.S. Propane Stocks Being Drawn Down

Colder weather has arrived in the U.S. and will help pull propane stocks yet lower. Exports remain active, as does petchem feed use, as well as usage for crop drying. Propane has traded at the highest level in months relative to WTI.

Ethanol Prices Higher

U.S. ethanol prices advanced during the week ending October 18 as supply was tight and corn rose after attracting large buying from China. RINs stabilized after a draft EPA memo lowering the 2014 biofuels mandates sent values plummeting during in the previous week.

U.S. Ethanol Output Soars

U.S. ethanol production soared to 897 MB/D the week ending October 18, the highest output since June 2012, as the 2013/2014 corn harvest is progressing in the Midwest and more feedstock is available at extraordinarily low prices. Output was up 3.2% from 869 MB/D in the preceding 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.

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