PIRA Energy Group's Weekly Oil Market Recap for the Week Ending February 3, 2013

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Bullish Factors to Push Oil Prices Higher

PIRA Energy Group

PIRA Energy Group

Global monetary easing continues, inflation is generally below targeted levels, and economic growth is beginning to gain momentum. This is bullish for oil prices.

NYC-based PIRA Energy Group believes that bullish factors will push oil prices higher. On the week, continued low U.S. refinery runs supported product stock draws and crude stock builds. In Japan, crude runs declined on the week. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

*Bullish Factors to Push Oil Prices Higher

Global monetary easing continues, inflation is generally below targeted levels, and economic growth is beginning to gain momentum. This is bullish for oil prices. PIRA sees prices moving higher with additional support from growing geopolitical risks to supply and tighter 1H13 oil market balances compared to a year ago. Huge OPEC and non-OPEC supply losses are offsetting the impact of large increases in North American supply. In terms of 2013 OPEC spare capacity, the worst has already passed.

*Continued Low U.S. Refinery Runs Support Product Stock Draws and Crude Builds

Total U.S. commercial stocks built the week ending January 25, as a crude stock increase more than offset a product inventory decline. The year-on-year stock excess narrowed as last year saw a larger overall inventory increase in this week.

*Japanese Crude Runs Decline Week-on-Week

For the week ending January 26, Japanese crude runs declined and crude stocks were modestly higher. Gasoline and gasoil demands were stronger and allowed for minor stocks draws in both products. Kerosene demand eased, with the stock draw rate continuing to run at recent levels.

*Fracking Policy Update: Major Federal Regulations Delayed on All Fronts

The Obama Administration’s three main regulatory actions addressing fracking have all been delayed, due to a combination of turnover in leadership at the EPA and DOI/BLM, combined with a desire to open up a more productive dialogue with industry. Further insight into the administration’s position is expected in the upcoming State of the Union address.

*Heating Season’s Largest Propane Draw to Date

The EIA propane inventory report for the week ending January 25 showed the highest draw for the U.S. heating season to date, and was more than double the decline that was recorded for the reference period last year. Frigid weather boosted overall demand to well above 2012’s level. While stocks have drawn over the last four weeks, inventory is comparatively high for this time of the year. Propane has been the more economic U.S. petrochemical feedstock for most of January. It is also an economic alternative to naphtha in Europe.

*Ethanol Cash Margins Bottom

In the week ending January 25, ethanol cash margins bottomed and PIRA’s model plant earned a small positive cash margin based on Chicago corn prices. Margins are expected to increase slowly throughout most of 2013, but high corn prices, weak consumption, and low exports will continue to exert downside pressure until the new corn crop is available in October.

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
(212) 542- 1677

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Jorge Martinez
PIRA Energy Group
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