PIRA Energy Group's Weekly Oil Market Recap for the Week Ending February 24, 2013

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Brent Crude Prices Test the Top of Recent Trading Range

PIRA Energy Group

PIRA Energy Group

Brent crude prices tested the top of their recent trading range, supported by an improving global economic environment, firmer short-term oil balances due to production outages/cuts, and generally upbeat sentiment for all risk assets, before retreating.

NYC-based [PIRA Energy Group reports that Brent crude prices tested the top of recent trading range. On the week, U.S. crude stocks built and products drew, while Japanese crude stocks rose as crude imports surged. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

*Brent Crude Prices Test the Top of Recent Trading Range

Brent crude prices tested the top of their recent trading range, supported by an improving global economic environment, firmer short-term oil balances due to production outages/cuts, and generally upbeat sentiment for all risk assets, before retreating. The downside risks that were expected to dominate in the second quarter appear to have begun earlier.

*U.S. Crude Stocks Build and Products Draw; Year-on-Year Commercial Stock Surplus Narrows

U.S. total commercial inventories drew the week ending February 15, as the crude stock build was more than offset by the product stock draw. Last year, commercial stocks built on the week, thus the year-on-year stock surplus narrowed. Crude stocks now account for the entire year-on-year commercial inventory surplus.

*Japanese Crude Stocks Rise as Crude Imports Surge Week-on-Week

Japanese crude stocks rose as crude imports surged the week ending February 16. Finished product stocks continued to rise as major product demands eased and remain soft. Refinery margins strengthened on the week, but product length increased, suggesting softer margins ahead.

*Long-Term Balances Reflect Higher Demand and Non-OPEC Supply, and Lower OPEC Crude

PIRA’s Scenario Planning Service Reference Case has changed considerably from a year ago February, although the price changes were largely incorporated into PIRA’s outlook beginning with the May 2012 quarterly update. PIRA’s current view of the oil market balances at higher levels of non-OPEC supply and demand and lower requirements for OPEC crude. The changes for natural gas were less dramatic, but directionally similar: lower price, higher supply and demand. However, PIRA notes that the upside price risks, particularly in the oil market, have not disappeared. No one knows how the Arab Spring will play out or how long the transition will take.

*Petrochemical LPG Buying Expected to Increase

U.S propane stocks remain too high, but increased exports will be supportive. Firm cracker operations should provide some support to ethane and propane in the coming months. With the end of winter fast approaching and stocks considered generally sufficient, there is no rush to make new commitments beyond immediate needs, especially in a backwardated market. European and Asian petchem buying will be picking up, given the considerable discounts to naphtha.

*Ethanol Profitability Rises on Declining Corn Prices, Reduced Production, and Low Stocks

After more than three months with PIRA’s U.S. model plant not covering cash costs, ethanol profitability has risen for about a month and a half due to declining corn prices, reduced production, and the lowest stocks since November. In addition, higher petroleum values created the largest blending incentive since November.

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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