PIRA Energy Group's Weekly Oil Market Recap for the Week Ending February 18, 2013

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Economic Growth, Monetary Stimulus, and Oil Supply Loss Fears Bolster Oil Prices

PIRA Energy Group

PIRA Energy Group

Economic Growth, Monetary Stimulus, and Oil Supply Loss Fears Bolster Brent Prices

NYC-based PIRA Energy Group believes that Dated Brent oil prices are being supported by global economic growth, monetary stimulus, and worries about growing supply losses, despite weaker January balances. In the U.S., commercial oil stocks drew on the week. Japanese crude stocks also drew. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

*Economic Growth, Monetary Stimulus, and Oil Supply Loss Fears Bolster Brent Prices

Oil prices endured softer January balances with surprising ease. Dated Brent is being supported by reaccelerating global economic growth, strong global monetary stimulus, worries about growing supply losses, and increasing turmoil in the Middle East. In Asia, product markets should be generally supported by rising turnarounds in the spring. Physical crude backs up during March/April as global refinery turnarounds peak.

*Low U.S. Crude Runs and a Demand Spike Drive Product Stock Draw

In the week ending February 8, the entirety of the U.S. commercial oil stock draw was due to an inventory decline in products. Crude stocks posted a small build. Low crude runs and a week-on-week increase in reported total demand drove the inventory decline.

*Japanese Crude Imports Correct Back Downward

Japanese crude imports dropped back on the week. The resulting crude stock draw corrected the large jump that was seen in the prior week. Dollar-based refining margins remain relatively strong due to strengthening light product cracks.

*What is the New Normal for Distillate Stocks?

Prior to 2009, with few exceptions, distillate inventories ended the winter heating season between 90-100 MMBbls. Distillate balances could draw by as much as 30-40 MMBbls during the winter heating seasons in the 1990s, making the target for October 1 stocks around 130 MMBbls. Over the past few years, inventories have repeatedly exceeded both the 90 MMBbl and 130 MMBbl levels. PIRA believes that the market is reverting back to the pre-2009 paradigm, but because of the greater prominence of distillate exports, inventory levels may cycle in a slightly higher band than they did historically.

*LPG Weekly Scorecard

The winter is close to winding down, but although U.S. propane inventories are declining at a rapid pace, they remain far too high, especially this late in the season. The start-up of Enterprise's expanded export terminal operations, along with Targa's later this year, will help redress the imbalance during the course of the year. Ethane stocks also remain too high and it will take on-going high levels of cracker operations to, at least partly, bring the imbalance under some control. There should be increased European and Asian LPG for feedstock buying in the months ahead, given the widening LPG discount to naphtha.

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

In the week ending February 8, U.S. ethanol prices fell for the first time in four weeks. Corn prices were lower most of the week, but they rebounded slightly after Friday’s WASDE report that was bullish for the market. Cash margins increased, confirming that profitability bottomed in mid-January. U.S. biodiesel prices rose to the highest level since September 2012 following the restoration of the $1 per gallon blending credit, and PIRA’s model plant was able to achieve a positive cash margin for the fifth consecutive 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) 542- 1677
info(at)pira(dot)com

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