PIRA Energy Group's Weekly Oil Market Recap for the Week Ending May 12th, 2013

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North American Midcontinent Grades Strengthen vs. Brent.

PIRA Energy Group

PIRA Energy Group

Crude price differentials between onshore and offshore grades continued to tighten in April, with the Dated Brent–WTI spread dropping.

NYC-based PIRA Energy Group reports that crude price differentials between onshore and offshore grades continued to tighten in April. On the week, U.S. commercial oil stocks had a moderate increase, while Japanese oil stocks had a large build. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

*North American Midcontinent Grades Strengthen vs. Brent

Crude price differentials between onshore and offshore grades continued to tighten in April, with the Dated Brent–WTI spread dropping. Midland grades also strengthened relative to Cushing WTI, as crude began flowing directly from West Texas to Houston.

*U.S. Stock Build Moderates

Overall U.S. oil commercial stocks had a moderate increase the week ending May 3. The product stock build narrowed due to an increase in reported product demand, which made a new high for the year. The crude balance was close to flat after a big build the week prior, as crude imports returned to a more normalized level and runs substantially increased. The overall inventory build was higher than 2012 levels, widening the year-on-year inventory excess.

*Impacts of Golden Week Holiday Impacts Balances in Japan

Two weeks of Japanese data were reported the week ending May 4. Refinery turnarounds are now clearly in evidence. Margins remain very poor and will induce discretionary run cuts on top of ongoing maintenance. In the latest week there was a large crude stock build on a sharp increase in crude imports. Gasoline demand was strong in the latest week due to the holiday, while gasoil was correspondingly weak.

*Recession Has a Negative Impact on Automotive Oil Demand in Europe

Traditional income elasticities have understated the negative impact of the recession on automotive oil demand. Much of the remainder of the demand drop is explained by car fleet fuel efficiency. Looking ahead to 2013-2014, the ongoing dieselization of the car fleet will allow car road diesel to grow over the next two years while gasoline demand continues to decline.

*Another LPG Stock Build

The transition week between April and May indicated another stock build. The overall gain was roughly one-third the prior week's increase. With propylene seeing a large draw, propane stocks grew but are under the same point of 2012. April's imputed overall stock build was the lowest in over 10 years for the month. Ethane usage continues to be impacted by steam cracker outages

*Ethanol prices and RINs rise

U.S. ethanol prices surged the week ending May 3 due to escalating corn prices resulting from delayed planting. A tighter market with inventories declining to the lowest level since November 2011 also supported prices. D6 RINs increased on concern that the delay might result in lower alcohol output for the year.

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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