PIRA Energy Group's Weekly Oil Market Recap for the Week Ending December 22nd, 2013

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Brent crude prices will stay strong.

PIRA Energy Group

PIRA Energy Group

Brent crude prices will stay strong into the early part of the first quarter, supported by relatively tight global supply-demand balances and low inventories.

NYC-based PIRA Energy Group believes that Brent crude prices will stay strong. The U.S. stock decline accelerates, while in Japan, crude stocks drop. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Brent Crude Prices Will Stay Strong

Brent crude prices will stay strong into the early part of the first quarter, supported by relatively tight global supply-demand balances and low inventories. Short covering is currently in progress, for the market has been overly bearish waiting on U.S. tapering and index buying in January will be another positive for Brent. Prices will inevitably trend lower later in the first quarter as refinery maintenance cuts crude demand and crude supply continues its unrelenting growth in the United States. United States crude prices have, as expected, recovered relative to Brent as U.S. crude inventory declined, but they will weaken again with U.S. refinery maintenance. Urals crude differentials will also weaken with spring refinery maintenance, then rebound before midyear.

U.S. Stock Decline Accelerates

With reported product demand at almost 21 MMB/D this past week, a new high for the year, product stocks declined while crude inventories built. From the week earlier overall inventory decline, the stock decline ramped up to 12.6 million barrels. The first two weeks of last December U.S. stocks increased 280 MB/D compared to this year's average decline of 1.24 MMB/D. From an inventory deficit of just 2 million barrels versus last year, total commercial stocks are now over 23 million barrels lower.

Japanese Crude Stocks Drop

Runs rose slightly on the week, but a big drop in implied crude imports allowed crude stocks to decline. Gasoline and gasoil demands both eased a bit and both stock levels built slightly. Kerosene demand weakened and a moderate contra-seasonal stock build ensued. Refinery margins eased slightly with lower middle distillate cracks more than offsetting gains in gasoline, naphtha, and fuel oil cracks. Refinery margins are still running just under statistical means.

Asia Pacific Fundamentals Remain Largely Supportive

Oil prices are strongly supported by relatively tight oil market supply/demand balances and low inventories. It is hard for prices to go down in this environment, especially in the middle of the winter. Moreover, the global macro environment remains largely constructive with Europe emerging from recession, the prospects for U.S. growth improving further, and Asia appearing to be on target for 5%+ growth in 2013 and 2014.

Latin American Crude Exports Increasing to Asia and Decreasing to the U.S.

Latin American crude exports to Asia are gradually increasing while exports to the United States are trending lower as U.S. import requirements wane and Asian prices are higher than for deliveries to the U.S. However, changes are not uniform, with some Latin American countries shifting exports to Asia more aggressively than others. Regional product imports of gasoline and middle distillates continue to increase, with local demand outpacing refinery runs. The United States is increasingly the largest supplier for these product imports.

European Gasoline and Gasoil/Diesel Outlook Through 2015

After declining in both 2011 and 2012, combined European gasoline and gasoil/diesel demand appears to be showing some signs of bottoming out this year. With European GDP growth expected to accelerate in both 2014 and 2015, PIRA believes demand for these products is set to stage a recovery of sorts. Increased economic activity will be a definite plus for non-highway diesel demand. On-highway use of diesel will continue to expand as the car fleet slowly becomes more dieselized.

Refinery Outages and Power Generation Demand Increase Venezuelan Product Imports

Prior to 2012, Venezuela imported almost no gasoline or diesel from the U.S. However, between January 2012 and September 2013, imports of these two products averaged nearly 45 MB/D. Two main trends are driving this uptick in imports. First, Venezuelan refinery outages in 2012 and 2013 are much higher than in prior years. Second, PIRA estimates that Venezuelan diesel demand for power generation increased substantially.

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
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New York, NY 10016

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