PIRA Energy Group's Weekly Oil Market Recap for the Week Ending April 7, 2013

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West Texas & Canadian Crude Differentials Continue to Strengthen.

PIRA Energy Group

PIRA Energy Group

West Texas and Canadian crude differentials continued to strengthen in March, while the Brent-WTI differential fell to the mid-teens.

NYC-based PIRA Energy Group Reports that West Texas and Canadian crude differentials continued to strengthen in March. On the week, U.S. oil stocks were essentially flat, while Japanese crude runs continued to drop and crude stocks built. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

*West Texas & Canadian Crude Differentials Continue to Strengthen

West Texas and Canadian crude differentials continued to strengthen in March, while the Brent-WTI differential fell to the mid-teens. Increasing rail shipments combined with oil sands project delays, maintenance reduced Canadian crude stocks, and the imminent start-up and line fill of new West Texas pipelines to the Gulf Coast boosted Midland prices.

*U.S. Stocks Essentially Flat Week-on-Week

Overall U.S. commercial oil inventories were essentially flat the week ending March 29, with the crude stock increase roughly matching the product inventory decline. The entire stock deficit is in products, and even with the adjustment for infrastructure, crude stocks would still be higher than 2012 levels.

*Japanese Crude Runs Continue to Drop, Big Rise in Crude Stocks

Japanese crude runs dropped again for the third week in a row and crude imports surged causing a very large crude stock build the week ending March 30. Demands were characterized as weak with yields on gasoline and gasoil rising. Kerosene stocks continued to draw strongly.

*Air Force & Jet Fuel Dominate Military Petroleum Purchases

Over the course of the last three fiscal years, the Air Force consumed over 50% of the fuel purchased by the Military. Jet fuel – for all branches of the service – accounted for the highest share of petroleum fuel purchased for military use. U.S. military overseas consumption of jet fuel did decline following the end of U.S. involvement in the Libyan civil war.

*North Sea Arbitrage to South Korea Down, But Not Out

Since July 2011 South Korean refiners have benefitted from the EU-Korea Free Trade Agreement exempting them from the import duty on crude oil for local consumption. This advantage is not afforded to other crude oil imports, like ESPO, thereby creating a big incentive to import North Sea versus competing crudes.

*Saudi Formula Crude Prices for May: Generally Less Generous to Refiners

Saudi’s formula prices for May were recently released. In general, pricing for lighter grades of crude were lowered with respect to their benchmark differentials, while medium and heavy grades were raised with respect to their pricing differential. The biggest reductions were on the lightest grades (Super light and Extra Light) and the biggest increases were for the heaviest grades (Arab Heavy and Arab Medium). Overall, pricing is deemed to be less advantageous to refiners, particularly in Asia.

*Biofuels in Developing Markets

Biofuels programs continue to proceed quite actively in many countries. Thailand gasohol production soared in January, since 91-octane ethanol free gasoline has been phased out. India’s E5 mandate is scheduled to go into effect on June 1. Gasoline marketers received a commitment for about half of the required liters domestically, and have issued a tender for the remainder.

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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